Many people do not purchase vehicles outright. Instead, they secure financing through their banks or the dealership where they purchase the vehicles. Car loans can help people afford vehicles in better condition and buy when the need arises.
However, car loans can become a complicating factor when people have to make major financial moves later. Dividing personal property as part of a divorce is certainly a major economic matter. Financed vehicles and the loans attached to them often require careful consideration during divorce negotiations.
Financed vehicles are both assets and a source of debt
A vehicle with a loan attached is not just an asset with a specific amount of equity accrued. It is also a source of liability and ongoing financial obligation. It can be difficult to fairly allocate responsibility for the loan while also addressing the need for independent transportation.
Spouses may rely on financed vehicles to get to work or care for family members, but they may not necessarily be able to afford the car loan on their own. Especially when combined with the cost of maintaining a separate household, people may worry about affording a car loan after a divorce.
Factors including child custody arrangements, income and health can influence how the courts divide both debts and assets in equitable property division proceedings. Divorcing couples also have the option of setting terms on their own.
It may be possible to allow each spouse to retain their vehicle. Other times, liquidating one vehicle might be necessary. Sometimes, one spouse’s financial support can help ensure that the other can continue to afford a vehicle while caring for their shared children.
Reviewing the details of a loan and the amount of equity accrued in the vehicle can help people plan realistically for property division negotiations. Financed vehicles can become points of contention as spouses seek to separate their resources and financial obligations during divorce.