A common issue in a divorce is the division of an automobile when the car debt is in the name of both parties. These can be tricky situations because they involve a third party, a creditor. Below I discuss possible options to divide a car in this situation, but first it is important to understand that the divorce court cannot control third parties, in this case the creditor.
A Court only has the power to control the parties in a lawsuit, i.e. the spouses. They cannot order your bank to do something, they cannot order a mortgage company to do something, and they cannot order an automobile creditor to do something. The only people they can order to do something are the two spouses in their court. And this makes sense. We do not want courts telling us what to do unless we are somehow involved in a lawsuit.
So here is the typical scenario – the spouses want to divide their cars in their divorce, but the debts on those cars are in the name of both parties. Neither party wants their name stuck to a piece of property that they no longer have any rights to. What can they do?
The creditor wants to get paid. They are not going to release a spouse off the car debt as that is one less person they can go after if the debt is not paid, so that is not an option. We just discussed that the Court does not have the ability to order the creditor to remove someone from the debt as they are a third party not involved in the suit, so that is off the table. So what do you do?
You have several options:
Sell the car and buy a new car in your name only. This is the preferred option as it is the easiest and the cleanest. The Court may also order this, but remember you are asking the Judge to take away someone’s sole mode of transportation. That is a big ask.
Refinance the car. This is more difficult as many people cannot qualify without their spouse. This is the next preferable option because if the spouse can qualify to refinance the car it is like re-buying the car. The debt would then belong only to the person who refinances. The Court’s will not typically order this as they have no control over whether the person qualifies or not for the new loan.
If neither of the above is possible, then you are left with a divorce decree that awards the car and debt to the party who is keeping the car. This does not remove the other spouse from the debt despite there being a court order that says it does. Why? See above. The Court does not have the power to do that. This is not the preferable option for two reasons.
First, the spouse can default on the loan. If that happens, your options are:
Do nothing. Obviously your credit rating, and your ex-spouse’s, takes a hit.
You can pay the outstanding debt to protect your credit and then file an enforcement with the divorce Court to recoup your expenditure on the debt your spouse was supposed to pay. The problem here is that even if the court awards you the funds you paid, there is really no way to collect it. Your ex isn’t paying the car note when they were ordered to, what makes you think they will pay this? The Court cannot put them in jail for not paying the debt, or paying you, as that violates the Texas Constitution.
You can add a provision to the divorce decree that states if payments are missed the car is awarded to the other spouse to then sell. The problem is, how do you actually get the car? Do you have keys? Perhaps you file an enforcement to get the car. Will the court really take away a person’s only mode of transportation? Maybe, maybe not. And what if you do get the car, then what? What if the car us upside down, meaning more is owed than what it is worth. Are you going to cover the difference?
Second, your name is still tied to a debt that shows on your credit report and could affect your ability to qualify for a loan in the future.
As you can see, dealing with third party creditors, whether it’s for a car or house, or anything else, can be difficult. Take the time to figure out how you want to handle this before you file for divorce, and discuss your options with your attorney and your spouse.