Americans, and Texans, in particular, love the open road and automobiles. Cars, trucks, etc.- it has a motor and four wheels, odds are we have driven one that has created memories for us. As Texans, we have no choice but to love or at least tolerate cars because to get anywhere we want to go will usually take twenty minutes. Anyone reading this blog post in Houston has to be nodding their head in agreement right now.
When we talk about cars we must also talk about the car ownership and car-related debt. If you are driving a relatively new vehicle it's likely that you either leased or financed that ride. Both methods of vehicle usage mean that you do not own the vehicle outright and therefore do not have title to the vehicle in your possession. Eventually, you may, but as of now, you drive a vehicle that is owned at least in part by a bank, car company or another financial house. This isn't a problem if you can make the payments and are not going through any circumstances that will cause your finances to flip on their head, but what happens if you or your spouse file for divorce?
Today's blog post from the Law Office of Bryan Fagan will discuss with you what happens when you go through a divorce about vehicles owned between you and your spouse. Some options can be chosen in mediation or rendered onto you by a judge that provide you with different directions that you can go to. However, some are more complex than others so I would like to share with you some information about each in this blog post.
Being vague is not going to help you when it comes to handling matters related to cars
Some family law attorneys and many of their blog posts will tend to gloss over issues related to cars. After all- cars are not a super-exciting, cutting edge topic to write about. Attorneys will pass off the details of your vehicle onto you or their paralegal and not pay much attention to it. However, from my experience as a family law attorney, there are not many subjects that are more relevant to just about every person going through a divorce than what happens with a vehicle after the divorce occurs.
If you listen to most attorneys, they will tell you in a general sense that you can transfer title to a vehicle as part of the divorce case by using a power of attorney form. You can give another person the ability to legally transfer title to a vehicle that bears your name. Furthermore, when pressed on the subject, those same attorneys would seem to hold the opinion that your name should not remain on the title along with your spouse for "liability" reasons. The reason for this is that if your spouse is unable to pay a vehicle's monthly payment then it is commonly thought that you bear some responsibility from a financial perspective. We will see in a moment that this may not be true, after all.
Keeping your car after a Texas divorce
This is an option that you can take advantage of if your vehicle is in your name only and the loan to that vehicle is also in your name only. What you would need to do after your divorce has been finalized is take your Final Decree of Divorce home and keep it someplace where you can reference it in the future. There is no need for you to contact your lender or the Department of Motor Vehicles after the divorce has been finalized since nothing changes with ownership of the vehicle or responsibility on the loan itself.
Keeping your car and refinancing the loan
If you owe money on your vehicle at the time of your divorce, this is an option that may appeal to you. When you are awarded this vehicle in your divorce then you will need to refinance the loan into your name only. This puts the responsibility of paying the note moving forward squarely on your shoulders and removes any responsibility for doing so from the shoulders of your ex-spouse. There may even be an order contained in your final decree of divorce that states you must refinance the vehicle.
Assuming that you have sufficient credit/income to successfully refinance the loan. Once this is done you would receive a piece of paper that releases you from the lien placed onto the vehicle by the creditor. Take this letter to the Department of Motor Vehicles and you will be presented with the title. Keep the title in a safe place and make copies of that lien release letter.
Keep the car and take his name off of the title
If your spouse's name is on the title to your vehicle but there is no debt owed, all you would need to do is take your Final Decree of Divorce down to your local Department of Motor Vehicles. You can present the Decree and show the employee where you are awarded sole ownership in it. From there, the title can be amended to remove your ex-spouse's name. This is perhaps the easiest situation that you could find yourself in, relative to vehicle ownership. Unfortunately, I have found that most folks who drive relatively new vehicles have a loan on that vehicle.
You keep the vehicle but your spouse’s name remains on the loan and title (along with yours)
This option makes the least sense to me and on a personal level is one that I would stay away from. However, many people (often by default) end up selecting the option to keep a vehicle but have their ex-spouse’s name remain on the title and loan. If a divorce is about separating yourself from your spouse in all things, including financial, this would seem to be a really bad way of going about that goal. Let’s take a closer look at why you may fall into the category of folks who go this route with their vehicle in a divorce.
This may be a viable or appealing option for you if you cannot pay off the car from proceeds from the divorce or your savings. Additionally, you may not qualify for a refinance due to problems with your credit score or a low income. If either of these circumstances is relevant in your life then you may be in a position where the option to keep the vehicle (out of a need for transportation) but not update the title would be something that seems to make sense for you.
Here is how it will typically work. In the Final Decree of Divorce, you will be ordered to make the car payments for the vehicle. Your ex-spouse's name will remain on the title to the vehicle even if a power of attorney could be drafted and signed that allows you to remove their name from the title. Until the vehicle is either paid off or is sold, their name will remain on the title. The main problem that I see from your perspective is that your spouse retains ownership rights to a piece of property awarded to you in the divorce. From your ex-spouse's perspective, he or she retains ownership right in the vehicle but does not have an easy way of following through on that right if you start to miss payments in the future.
Future liability on a vehicle that you do not own and was not awarded in your final decree of divorce
Let's take the above example and look at it as if you were the spouse who was not awarded the vehicle, but instead has their name appear on a loan and title to a vehicle awarded to your ex-spouse in the divorce. It makes a ton of sense to refinance any jointly held vehicle loan. The other option that I would advise most folks on would be to sell the vehicle if you cannot be approved for a refinance. Even if you are underwater on the loan you can take out a personal loan at a credit union to pay the difference and get yourself a more inexpensive vehicle for transportation.
The thing to keep in mind that is very important is that just because your spouse is awarded the vehicle in a divorce, and that award includes the debt associated with the vehicle, the lender does not care one bit about what that divorce decree states. If you signed up for a car loan, the divorce decree will not affect the relationship that you have as a debtor to that lender. They will still treat you as a responsible party under that loan no matter what your divorce decree says about the matter.
Here is an example that I will give you that hopefully better illustrates my point. Suppose that you and your ex-husband purchased a vehicle in 2016. You were listed as the buyer of the vehicle and he is also named on the title. You were divorced only a year later in 2017. In the final decree of divorce, the vehicle was awarded to him and he was also awarded the liability of paying the car note. Fast forward to this year and the vehicle was repossessed for his failure to make timely payments on the note.
You may be surprised to find a process server on your doorstep handing you legal documents that tell you that you are being sued for the amount of money left on the account as unpaid. Keep in mind that the bottom line is that the liability on the vehicle note follows the vehicle. If your name remains on the title then that liability follows you- even after a divorced. This is the position of the State of Texas.
If your ex-spouse decides not to refinance the vehicle to satisfy the amount owed on the loan, there is an option available to get out from liability in a situation like this. You would need to have your ex-spouse execute a power of attorney that allows your name to be removed from the title. Your name would be removed from the title by taking the power of attorney to the Department of Motor Vehicles. Once you can prove that the title is free and clear of any liens, the title can then be transferred to whoever was awarded the car in the divorce.
The bottom line is this: even if you are awarded a vehicle in your divorce, and even if your spouse has signed a power of attorney that allows you to remove their name, the title to the vehicle will still bear your ex-spouse’s name until the vehicle is either paid in full or refinanced. The Department of Motor vehicles is essentially doing a solid for lenders in keeping all original names on the title until the loan is paid or released in full.
More information about what happens after a divorce when there is no car lien
We will pick up where we left off today by discussing with you more information regarding vehicles and divorce in tomorrow's blog post. Again, I think this is an important and common problem that people run into during divorces and as a result, I wanted to devote some time to study it with you.
In the meantime, if you have any questions about today’s blog post or the content contained therein, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week here in our office. The consultations are a great opportunity to learn more about family law and to receive feedback about your specific circumstances.
Our attorneys represent clients throughout southeast Texas and do so with a great deal of pride. Thank you for taking an interest in today’s blog post topic and we hope that you will join us again tomorrow.