Divorce is a complex and stressful event that impacts nearly every aspect of your personal and financial life. One of the things a divorcing couple may need to handle is a car loan one of them has cosigned for the other. There is a way to settle the issue of a cosigned car loan during a divorce, if the proper steps are taken.
Divorce Settlement Decree
The first step in removing you or your former spouse from a cosigned auto loan is to have all marital debt included in the final divorce settlement decree. The finalized divorce order should cover not only how assets are split and what kind of support will be paid, but also how any debts incurred by the couple as a unit will be handled. While a divorce settlement court order cannot change the preexisting loan terms, it can put a time table on when you and your ex-spouse need to have the debt settled in the way agreeable to both parties. Set a date by which the loan needs to be paid off or refinanced without the cosigner.
A common mistake made by someone going through a divorce is the assumption that the former spouse in possession of a car with a cosigned loan is going to keep up with the monthly loan payments on their own if the debt wasn't specifically covered in the divorce decree. Assumptions have no place in complex legal and financial negotiations and you should ensure every detail, including a cosigned car loan, is touched on during divorce settlement proceedings.
Refinance
One way to remove a spouse you are divorcing from a cosigned car loan is to refinance the loan in just your name. Not only will refinancing deal with the cosigner issue, but it could benefit you in terms of the loan itself if your credit has improved since first buying the car. If your credit and income still make it necessary to use a cosigner on the refinanced loan, you can switch your cosigner to someone other than your former spouse. Keep in mind that, since it is not able to be garnished in the event of a loan default, any child support payments you receive as a result of the divorce can make it difficult to get a new loan approved. Determine if you are able to effectively benefit from the outcome before you commit to refinancing the cosigned loan completely on your own without a new cosigner on board.
The ramifications of a divorce extend across every facet of life and include a complex network of financial and legal factors. Have a plan in place for refinancing a cosigned auto loan as soon as possible so both you and your former spouse can move forward without complicated, comingled debts.
*Image courtesy of freedigitalphotos.net
