What happens to our joint auto loan when we divorce?

Car, rose, and wedding rings
Financially, the most contentious part of a divorce is usually the divvying up of assets between spouses. When it comes to auto loans, there are several factors that determine who the loan and, more importantly, the car, will be granted to.

Do you live in a community property state?

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are all community property states. In a community property state, everything a spouse owns before the marriage, including debts, will be granted to that spouse during a divorce. Everything the couple acquires during the marriage, however, will be split equally between them.

Did you take out your loan before the marriage?

Deepa Menon, a San Francisco, Calif.-based lawyer with Rocket Lawyer, told that if one spouse owned the car before the marriage, then they’ll be granted the car during the divorce. However, if both spouses paid for the car during the marriage, the spouse who does not receive the car is entitled to be reimbursed.

“If during the course of the marriage you’ve been using joint funds, or perhaps your spouse’s funds to pay the car loan, there’s a right to reimbursement there,” Menon said.

Payments made towards the auto loan from joint accounts have to be taken into consideration when assets are divided between the couple.

Did you take out the loan during the marriage?

If the car loan was taken out during the marriage, however, then both parties have a right to the car.

“If you obtain the car loan during the marriage, that is what’s considered community debt and it belongs to the divorcing parties 50/50,” Menon said.

During a divorce in a community property state like California, the couple, their lawyers, or a judge will assign all assets a monetary value and try to split the assets evenly between the two parties.

Menon said there is one exception to this rule. If a couple’s debts outweigh their assets, then a judge will most likely hand the loan over to the spouse in a better position to repay the debt.  Luckily, it’s rare for a spouse to be put in charge of the auto loan without also receiving the car.