Joint Car Loans: How Can You Protect Your Credit?

In many divorces, car loans are on long-term payment plans and cannot be refinanced into just one party’s name very easily.  If your spouse is retaining as his/her sole and separate property a vehicle with a debt owed against it, and your name is on the debt, you should have concerns about how to protect yourself if your spouse defaults on the loan.  Your divorce decree is, among other things,  a contract between you and your ex-spouse, but it does not govern your creditors. Thus, a joint car loan continues to be joint in the eyes of your creditor, even if your former spouse is the party ordered by the court to maintain responsibility for the loan.

You do have remedies to protect your credit, which you may be able to incorporate into a divorce decree. Each jurisdiction has different requirements for enforcing the below options, so consult your attorney about these possible remedies.

A provision regarding repossession of vehicle for late payments

One possible protection you can seek for your decree is a paragraph stating that, if your spouse fails to make timely payments on the loan for “[x] months during an [x] month period of time”, you can take possession of the vehicle and trade it in to satisfy the loan.  This may provide an additional incentive to your spouse to keep up on the payments owed, and provides you with a remedy for minimizing harm to your credit as much as possible if your ex-spouse fails to make the monthly payments on time. Many creditors for car loans will pursue repossession of a vehicle if the monthly payments are missed completely, but if your spouse is consistently making late payments but not failing to make the payments overall, this provision may provide you with more stringent protection.

“Hold harmless” provision

For a debt on which your spouse is taking full responsibility, such as a car loan, you can include language that your spouse “hold you harmless” for that debt- that is, your spouse agrees that you are not liable for the debt owed, even if it is in your name.  This clause is important because you can use it to recover monetary funds from your ex-spouse if she/he fails to pay a debt your ex-spouse assumed under your divorce agreement. If a creditor comes after you for payment on a debt, you can use this clause to recover those funds from your ex-spouse as reimbursement. You can also ask for attorney’s fees if you are required to pursue recovery from your ex-spouse.

Contempt of court

If your ex-spouse fails to make timely payments on the car loan, you can ask the Court to hold her/him in contempt for failing to abide by the decree. The court can grant you relief, issue monetary sanctions against your ex-spouse, and/or award you attorney’s fees, among other options, if your ex-spouse’s failure to pay meets your jurisdiction’s criteria for violating a court Order.

Monetary judgment against spouse

If the creditor for the car loan pursues payment from you, you can pursue reimbursement for what the creditor recovered from you from your ex-spouse.  You can pursue remedies against your ex-spouse with the court similar to a creditor. You can attempt to garnish your ex-spouse’s wages, put a lien on property in your ex-spouse’s name, and pursue other monetary remedies available in your state.

It is best to avoid the above situation by paying off any joint debts you can, but in cases where a debt cannot be refinanced or paid off, such as a car loan, you can take steps to protect yourself from your ex-spouse’s possible failure to make payments. An experienced domestic law attorney can work with you to craft a decree that protects your interests to the greatest extent possible under the applicable laws.