Must I pay the balance of my spouse’s car lease?


If we divorce, must I pay the balance of my spouse’s car lease?

If we divorce, must I pay the balance of my spouse’s car lease?

For Tennessee spouses who leased their personal vehicle in lieu of purchasing it, responsibility for paying the car lease balance is another issue to be resolved in divorce. In a situation where both signed the lease agreement, both became liable on the debt. Typically, the spouse awarded the lease vehicle is also made responsible for the monthly payments. Absent agreement to the contrary, the spouse who does not get the car wants assurance that he or she will never be legally responsible for paying the balance or, perhaps worse, curing a default.

The car dealer or leasing company is not a party to the divorce and is not bound by the decree, but is bound by the terms of the lease. This means the best place to start looking for solutions is the contract itself. What does the lease agreement say about early termination and transfer?

Option 1: Keep the Car Without the Lease

If the spouse plans to hold onto the car long after the divorce, then terminating the lease may be the most suitable option. To keep the vehicle free of any lease, the spouse will need to pay off the vehicle. How much will depend upon the number of payments made and the vehicle’s make, model, and year. Contact the leasing company for the pay-off amount. If that amount is greater than the spouse’s available cash, then obtaining a secured loan from the bank or credit union could make it happen. (The new lender buys out the lease with the vehicle as security for the debt, just like any other car loan.)

Some spouses may want to get out of the whole deal by terminating the lease and surrendering the car to the leasing company. Unless a more favorable arrangement is reached, this means giving up the vehicle and paying all amounts due under the lease as originally agreed. This puts the spouse awarded the lease vehicle in the unpleasant position of paying for, yet losing, the car. After crunching the numbers, however, acquiring a previously owned vehicle as a commuter car may be more economical until personal finances improve in a year or two after the divorce.

Option 2: Sell the Leased Vehicle

Another option is to sell the leased vehicle. Consider two possible scenarios. On the one hand, the car could be sold back to the lessor-dealer who, of course, expects to profit from that arrangement. The sale proceeds are used to pay-off or pay-down the balance owed on the lease. What happens when the vehicle’s value is less than what is owed? An additional infusion of cash may still be necessary to terminate the lease permanently and get rid of the car. Look to the terms of the lease.

On the other hand, the leased car could be sold to a third party. If the sale proceeds are equal to or greater than what is owed the lessor, then the spouse awarded the car comes out of the transaction in good reasonably shape, albeit without the car.

Option 3: Transfer the Lease

Another option is to transfer the lease to a third party. Whether the car and lease are transferred to a relative, co-worker, neighbor, friend, or complete stranger, this may be the more economical, efficient process. A transfer fee and qualification process is routine, but not anything overly complicated.

Option 4: Lease Trade-In

The spouse could swap the leased vehicle for a new leased vehicle. So long as this works out to be beneficial for the dealer, a trade-in is distinctly possible. The old lease terminates along with the other spouse’s liability. A new lease would be made the sole responsibility of the individual lessee. If the other spouse was awarded the vehicle and performed a lease trade-in, then this would free you from liability on the original lease balance.

What if there is no transfer, sale, or lease trade-in? There is one more possibility, and it’s not a good one.

Option 5: Default and Surrender

Lastly, the spouse awarded the car could stop making payments, default on the lease, and voluntarily surrender the vehicle to the lessor – letting the chips fall where they may. The chips are likely to fall directly at the co-signer’s feet. The defaulting spouse could be held in contempt of court for violating the divorce decree’s debt division, but the co-signer remains in a tenuous situation. As co-signer, you could still be legally obligated to pay the balance despite the property settlement. This is precisely the situation you want to avoid.

About 

Memphis divorce attorney and family lawyer, Miles Mason, Sr. JD, CPA founded the Miles Mason Family Law Group, PLC. The firm practices divorce and family law only representing clients living in Memphis, Germantown, Collierville, Bartlett, Eads, Shelby Co., Fayette Co. Tipton Co., and the surrounding west Tennessee area. For more information, see our Meet the Team page.

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