What is the effect of a co-signed loan in a divorce?

Here at Auto Credit Express, we are sometimes asked that if a divorce decree makes an ex-spouse responsible for a loan, and payments are not made, will that affect your credit score. If you think it won’t, you could be in for a rude surprise…

Outside Agreements

When a bank makes a loan, it is based on the information provided on the loan application. Once the application has been approved and the loan papers are signed by both parties, it is considered a contract.

Even if the judge in the divorce rules that your ex-spouse is responsible for, example, an auto loan, the bank that originated that loan considers the divorce decree to be an outside agreement made after the loan was approved. Because this agreement is not in the contract, both you and your ex-spouse are still responsible, jointly and individually, for car payments. If payments aren’t made on time, or if the vehicle is repossessed, it will bring down both your credit scores.

The Bottom Line

If you are involved in a divorce and have joint accounts, make sure those accounts are closed and payments on the balances are made on time. Better yet, before the divorce is final, make sure all joint accounts are refinanced in individual names. Here at Auto Credit Express, we want you “on the road” to smarter and better credit.

Posted on February 18, 2008 by in New Cars
Reader Comments

2 Responses to What is the effect of a co-signed loan in a divorce?

  1. Nicole Overbey says:

    Is there anything that can be done if an ex is not paying the car payment?

  2. Steve Cypher says:

    Nichole,
    Even if the divorce decree states that the ex is responsible for the loan, the lender still considers both you and your ex “individually and jointly” responsible for the loan, since the loan was agreed to prior to the divorce. As far as forcing your ex to make payments or otherwise exploring any other recourse that you might have, I would suggest that you contact a lawyer to see what your options might be at this point.

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