Car finance and divorce: what happens to the agreement?

What happens to car finance when you get divorced? Learn who's liable and your transfer options.

When you took out a car finance agreement with your spouse, you probably didn't think about what might happen if you got divorced.

That means it can be hard to know where you stand or what to do first. You probably have hundreds of things to think about – and it would be nice if car finance wasn't one of them.

We're here to make it as simple as possible. In this guide, we explain how car finance is treated during divorce proceedings, who's likely to be liable for payments and your transfer options. You'll also find advice on getting a new car, in case you need one.

Is a car on finance a matrimonial asset or personal property?

Did you buy the car together during your marriage? If so, it will usually be considered part of your matrimonial assets.

Matrimonial assets (also called "marital assets") are the property, money and financial resources a couple collects together throughout their marriage.

If a car is considered a matrimonial asset, it doesn't always matter who drives it most or whose name is on the V5C logbook. That's because the V5C only identifies the car's registered keeper, not its legal owner.

So, when your finances are divided during a divorce, the car can be taken into account regardless of whose name is on the paperwork.

Who is liable for the outstanding finance?

Being liable for car finance debt means you're legally responsible for paying back the money you owe on a credit agreement.

This is separate from how the car is divided during a divorce. Even if your spouse is awarded the car, that doesn't automatically make them responsible for the finance payments.

So, who's liable when you're getting divorced? Generally, it depends on whose name is on the finance agreement.

If both your names are listed

Your car finance company can approach either of you for the outstanding balance. It doesn't matter who keeps the car.

If there's only one name on the agreement

The car finance company is only legally entitled to approach that person for payment. However, your legal teams will still factor the debt into the final divorce settlement.

An example

• John and Julie are divorcing.
• Their car is worth £20,000, and £5,000 is needed to settle its finance agreement.
• Only John's name is on the agreement, so he's legally responsible for the outstanding finance.
• The car therefore has a net value of £15,000 (£20,000 minus the £5,000 owed). 
• John keeps the car and remains responsible for the finance. For the purposes of dividing their assets, he's effectively received something worth £15,000.
• To balance this out, Julie might receive £15,000 from their shared savings.
  
  

Of course, divorce settlements aren't always split equally. The court will consider the couple's wider financial circumstances and needs when deciding how to divide their assets fairly.

Transfer options

If you're keeping the car and the finance agreement is already in your name, you can usually carry on making the repayments as normal.

But what if your spouse is named on the agreement, or you're both responsible for the finance and want to separate your finances? You can't simply hand over the keys or change the registered keeper on the V5C. You also need to deal with the existing finance agreement.

Here are some options to think about.

If one person wants to keep the car and take full responsibility for the debt

Refinance

One option is for the person keeping the car to apply for a new finance agreement in their own name. If approved, this could be used to settle the existing finance and replace it with an agreement they're solely responsible for.

However, they'll need to meet the new lender's eligibility and affordability requirements. This could be harder if their income or financial circumstances have changed following the divorce.

If you want to keep the same finance agreement but transfer it into a single name

Formal transfer of equity (novation)

Some lenders will allow this, but not all.

First, they'll consider factors such as the income and credit rating of the person taking over the car finance repayments. If the lender is happy with their financial circumstances, the person will have to sign a novation agreement. This transfers ownership and payment responsibilities to them.

If you can't agree who gets (or pays for) the car

Court-ordered transfer

The court can decide who gets the vehicle during your financial remedy proceedings (where all matrimonial assets are divided up).

However, the debt can only be transferred if the lender accepts. The lender may not want to do this if the other person fails to meet their credit requirements.

If the lender says no, the court usually orders the car to be sold. They can also use an indemnity clause, where one person agrees to compensate the other for specific losses or liabilities.

If you have savings in the marital pot

You can choose a direct settlement and ownership transfer

This involves settling the car finance agreement using joint savings or money from another source (such as money from a house sale or remortgage).

Once the finance is settled and ownership has passed from the lender, the car can be transferred to whichever spouse is keeping it as part of the divorce settlement. If the registered keeper changes, you'll also need to update the V5C.

The other spouse may receive money or a larger share of another asset to help make the overall settlement fair.

How to get a new car sorted after a separation

When going through a divorce, it makes sense that you'd want to sort out your own car. However, arranging a new car finance agreement before your separation is finalised can affect your divorce negotiations.

Here are some options to consider.

Buying a new car with cash

This is usually your easiest option, but it depends on where you're getting the cash from:

• Joint account or savings: these are considered matrimonial assets, so you need to document it as 'essential transport' with your legal team.
  
  
• Post-separation income: are you paying for the car using your own money earned after your separation? This is usually more straightforward because that money is typically not considered a matrimonial asset. However, be sure to keep all receipts and records in case the judge or legal team wants to see them.
  
  

Applying for new car finance after separation

To apply for car finance, you'll have to undergo credit checks with your new financial situation and disclose certain things.

• Credit checks can become more complicated during a divorce. If you still have joint accounts, mortgages or loans with your ex-partner, your credit files will be financially linked. This can make it harder to get car finance in certain situations. For example, if they miss a credit card payment, that can affect your credit score, too 
  
  
• Affordability checks: your financial situation may change during or after a divorce, as well as what lenders believe you can afford.
  
  
• Full financial disclosure: as part of your divorce, you'll generally need to disclose all your assets, debts and other financial circumstances. Taking out a new £15,000 car finance agreement while your divorce settlement is being negotiated isn't necessarily a problem. However, you may be asked to explain the borrowing. That's particularly true if your spouse or their legal team believes you've taken on unnecessary debt to influence how your finances are divided.
  
  

About Zoomo

Zoomo is a car dealership and credit broker specialising in bad credit car finance in Newcastle.

We know that divorce can change your financial situation and make applying for finance more complicated. However, we work with specialist lenders that take a holistic view of what you can afford. That means we can help more people get approved for finance.

In fact, 96% of people who apply for finance through Zoomo get approved.



So, whenever you're ready, we'll be here to help. We've made it quick and easy to apply for finance online – and thanks to our soft-search technology, it won't affect your credit score at this stage.