Dividing debt is a standard part of divorce proceedings, and even if a vehicle is in one spouse’s name, the court may order the other spouse to make full or partial payments. If your wife’s name is the only one on the loan, she’s the only one held responsible by the lender. If payments aren’t made, only her credit score should go down.
However, if the court has ordered you to make payments as part of the divorce settlement, you’re legally responsible. If you refuse, the judge could find you in contempt and jail you. Even without a court order, you may find yourself responsible for half the debt if you live in a community property state.
While you often aren't responsible for a car loan only in your wife's name, this may not be the case if you live in a community property state or if a court orders you as part of a divorce settlement.
Determining Debt Responsibility
Most states use the common law system for determining property ownership and hold one spouse responsible only if her name is on a deed, registration paper or other document showing ownership. In these states, property held in only your wife's name stays her responsibility alone, even if she purchased it during the marriage. You're generally protected if the vehicle and the attached loan name only your wife.
Remember, however, that the typical rules of a common law states aren't carved in stone. The terms of your prenuptial agreement, if you signed one, may supersede the state's common law property ownership determination.
A judge, too, has the power to assign the car payment to you as part of the divorce settlement. He may do so if your income is significantly higher than your wife's or if you're considered at fault for the divorce. If that happens, you become responsible for the debt even though you ordinarily wouldn't be.
Understanding Community Property Laws
Some states follow community property laws, which dictate that all property -- and all debt -- acquired during the marriage belongs to both spouses, regardless of whose name the loan is in. In a community property state, you're not liable for half of your wife's car loan if she bought the car before you got married. If, however, she bought the car after you got married, you're liable for half the debt even if the car and loan are in her name only.
Even if the two of you have agreed to split your debts differently, the arrangement is not legally binding until the judge approves it. Until then, all debts acquired during the marriage belong to both of you, regardless of whose name is on them. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, observe community property laws, as does Puerto Rico.
Handling Set-Off Agreements
In some divorces, one spouse can voluntarily take on a car payment in lieu of other payments such as alimony or child support. If you’re worried about your wife missing car payments and ruining your credit, making the payments yourself can ensure your credit stays safe.
With a set-off arrangement, you’re spending the same amount of money you would anyway because the car payments replace support or other payments. This arrangement is especially helpful if you’re unsure for any reason about your responsibility for the car payments, or if you live in a community property state where spouses are equally responsible for debts incurred during the marriage.
Cutting Ties to the Vehicle
When you divorce, cut all ties to the vehicle to ensure you're not held responsible. If the car title bears both your name and your wife’s, have your name removed from the title. Keep in mind, though, that removing your name from the title doesn’t protect you if your name is on the loan as a primary borrower or a co-signer.
Contact the insurance company to let them know you should no longer appear on the policy for that vehicle. For the most protection, arrange to sell the car, with you and your wife splitting any proceeds. Remember, however, that taking these steps won't override a court order or law that makes you responsible for the car payment.
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