What Can I Do if I'm Getting Divorced & Co-Signed on My Ex's Truck?
By Beverly Bird
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It’s usually easier to end your marriage than to get out of a joint loan obligation with your spouse. If you co-sign for a vehicle with your ex, the lender has no legal obligation to let you off the hook for the loan simply because you’re divorcing. Your repayment agreement is a legally binding contract that has nothing to do with your divorce. When you co-signed, you agreed that if your ex did not make the payments, you would. This agreement obligates you, regardless of whether you’re married to the person you co-signed for.
If your divorce goes to trial and a judge decides issues of property and debt, most divorce decrees contain language relating to marital vehicles. This language specifies that the spouse who retains a marital vehicle must assume responsibility for the loan, insurance, maintenance and repair. However, the lender is not legally obligated to honor such provisions. If your ex doesn't make good on this responsibility, you're still on the hook for the loan payments. For extra protection, you can ask the judge to obligate your ex to refinance the loan into his name only. You can also insist that this language be included in your marital settlement agreement if your divorce does not go to trial.
Retaining the Vehicle
If your ex’s credit is poor and he can't get approval for refinancing on his own, you can refinance the vehicle into your own name instead. You can take ownership of the truck as part of your divorce. This is easiest when the loan balance is roughly comparable to what the vehicle is worth. If you don’t need or want the truck, you can sell it for cash or trade it in for a vehicle you prefer. If the loan is “underwater” and the truck is no longer worth the loan balance, you can offset this loss by taking other marital property of equal value. For example, if the loan is $15,000 and the truck has a book value of $10,000, you can assume the loan and take an additional $5,000 from a savings or investment account, or another asset worth $5,000, to make up for your loss.
Paying Off the Loan
Another option is to pay off the loan as part of your divorce property settlement. For example, if you’re selling your marital home, you can ask that a portion of the proceeds go toward paying off the truck. Just as you are equally responsible for the loan, half the value of the truck is yours as well. If you choose to pay it off through marital proceeds, only half the debt is your responsibility, but half of the asset's book value gets credited to you as well. If the truck's book value is $10,000, you should get credit for $5,000 if your ex keeps it after you pay it off from marital assets. You can take another asset worth $5,000.
Return to Court
If you can't protect your credit and your obligation to pay the loan if your ex defaults, you have one more option. You can usually take your ex back to court if he doesn't perform as he was supposed to in your divorce decree or settlement. A divorce court can’t force the lender to pursue only your ex for payment if you co-signed on the loan, but it can order your ex to compensate you for any payments you have to make if he doesn’t, assuming he received the vehicle in the divorce. A family court judge can enforce your divorce degree or marital settlement by ordering your ex to repay you any money you had to spend on a truck he kept as part of the divorce settlement.
Beverly Bird is a practicing paralegal who has been writing professionally on legal subjects for over 30 years. She specializes in family law and estate law and has mediated family custody issues.