I am happily married (25 years old) and retired for medical reasons (I am 58). My husband makes good money. We meet all of our basic needs, but his retirement is severely underfunded.
We’ve had to get out of debt recently and have been reduced to one credit card with no interest and we still owe about $18,000. Our house will be paid off in about four years, and I send in an extra $300 each month.
My husband is very willing to get an expensive new car that costs about 60 thousand dollars. I can’t talk to him about it, though I tried! He’s fine in business until he’s 70 and will be using his old car as a down payment and won’t pay any extra money.
I’m worried if something happens to him before he pays for the new car. If he dies and I am not co-signer, will that protect me? I don’t want the car, and I don’t want the hassle of trying to sell it if it passes. I’m also worried about him not passing but he needs a long term facility or nursing home.
How do I protect myself for my future? He has many health problems, but so do I.
Dear Mrs. M.
Your spouse may be approaching retirement age, but he needs to be really older. A $60,000 car is something you buy when your retirement accounts are lavish and you have little to no debt. But I know I’m preaching to the choir.
To answer your question: The effect on you depends largely on the state in which you live. If you live in one of the 41 states that follow common-law property rules, you will not be liable for the debt as long as your name is not on the loan. But in the other nine states that follow community property rules—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—each spouse is equally responsible for any debt incurred during the marriage.
In the common law case, if your spouse dies due to a car debt, the car and loan will become part of his estate. The estate — specifically, who is the executor of the estate — will be responsible for making payments from your spouse’s assets during the will.
If you inherited the car along with your spouse’s other property, you can simply call the lender and hand it over. The lender can still sue the estate. But since your name will not be on the loan, you will not be sued for debt. Your credit score will not be affected. You may be able to do the same if your spouse becomes disabled. Doing so will damage his balance, but it won’t affect your balance.
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But if you live in a condominium, the lender can sue you for debt even if you don’t co-sign. If your spouse does not have adequate life and disability insurance that allows you to cover car premiums, there is a real risk to your credit and finances.
No matter where you live, this purchase is a bad idea. Your husband may think his plan to work until 70 fixes everything. But the reality is that many people are forced to retire earlier than they planned due to medical problems or job loss. That prospect is scary, especially considering you say his retirement plan is severely underfunded. The money your spouse might spend on car payments should go to offsetting retirement savings.
I know you tried to convince your husband not to make this purchase. But I wonder if he might be more willing to listen to an impartial third party. It can be helpful to hire a fee-only financial planner to assess your retirement planning and set a specific savings goal. Perhaps your husband will see how difficult it is to reach this goal with large car payments.
If that doesn’t work, maybe the two can come to a compromise. At the very least, can he put off buying this car until the credit card is paid off? This 0% interest rate will not last forever. Paying off the balance before you start collecting interest is a must in this case. As new car prices continue to rise, your husband may also save money if he can just be a little patient.
I’m afraid there is nothing you can do if your husband is really determined to make this ridiculous purchase. But I hope he’ll come and see that no car is worth putting your retirement at risk.
• • •
Robin Hartell is a certified financial planner and senior writer for The Penny Hoarder. Send your tough financial questions to AskPenny@thepennyhoarder.com.
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