Marital home debt is usually divided through the determination of what happens with the home. If the home is sold, the debt is paid off in the sale. As homes often have a value above the amount owed (“equity”), if the home is sold and the debt is paid, there are often additional funds left over for the Parties to divide. This is usually some nice tax free cash and can provide both Parties with sufficient funds to get started on their future. If a Party wishes to retain the home and the loan is in their name alone, the only issue that must be decided is how much that person must pay the other to buy out the other’s marital equity. If there are enough other assets to provide the other Party with sufficient marital equity, nothing more needs to be done with the home—other than one Party moves out. If the home needs to be refinanced by the one Party to pull out sufficient funds to pay off the other’s equity interest, that often raises the monthly payment on the home. This must be a consideration on whether a Party can keep the home or not—once it is refinanced to pay off the other Party, is the monthly payment still affordable? If the marital home loan is in both Parties’ names, they must either sell the home, pay off the loan (with assets awarded to the Party that wants to keep the home) or one Party refinances the home in their sole name—and then keeps the home. A Court will not order both Parties to remain obligated on the joint home loan. Parties can agree to do this (it is ill-advised), but absent agreement, a Court will not order it. Either the home is sold thereby extinguishing the loan or it or it is refinanced into just one Party’s name.
5. Car loans create particular dilemmas. If the vehicle was purchased during the marriage it is a marital vehicle, and the debt goes with the vehicle. Sometimes the asset is worth more than the debt, sometimes not. If the debt is in only one Party’s name, the vehicle will likely be awarded to that person. If the vehicle debt is in both Party’s names, that is where the complications arise. Each Party usually needs a vehicle (to get to work, transport the Children, live in modern society, etc.); but when a vehicle loan is jointly held (in both names) both Parties remain obligated until the loan is either paid off, the car is sold/traded or the loan is refinanced. Both Parties remain obligated on the loan even though only one Party is Court ordered to pay the loan. The Court cannot change the loan contract and this means that if payment is not made by the person ordered to pay, both Parties’ credit scores are impacted and the car may be repossessed.
One option for a jointly held car loan is refinance. However, refinancing a joint car loan into only one Party’s name, can be difficult. If the vehicle is upside down (more is owed than it is worth, it likely cannot be refinanced or sold. Also, an upside down vehicle cannot be traded in or the monthly car payment on the new vehicle will be huge–to make up for what is owed on the traded in car plus the payment on the new car. Unfortunately, there is no easy solution if refinance or sale is not possible.
What happens most of the time is that one Party (the one that drives the car) will be ordered to pay the jointly held car debt and will likely be ordered to indemnify the other Party if they default on a payment. However, this is an empty remedy since someone who does not make a Court ordered car payment, usually cannot or will not have funds available to indemnify (pay back) the other person and when the payment is missed, the harm to credit scores is automatic and cannot be undone. Even having an order that if a payment is missed the other Party can go get the car, often results in failure. The deadbeat payor will hide the car or cause damage to the car if they think it is going to be taken by the other Party. If a payment is not made and the other Party cares about their credit score, the other Party could always make the payment (to preserve their credit) and try to get paid back by the deadbeat payor. Good luck with that.
A better option sometimes might be to pay off the car loan with other assets, if possible. House sale money, savings accounts, etc. might provide the means to get the joint debt settled. Whoever gets the car and the benefit of the paid off debt, will have to give something up to balance what they receive. Your attorney can help you understand better the facts surrounding the vehicle loans in your divorce. It is worth your attorney’s time and cost to attempt to create the best possible and most realistic resolution to car loan dilemma. It can save you a few years of aggravation and ruined credit allowing you to proceed into a successful financial future.