When you’re reliant on one family car and would struggle to replace it, deciding who gets to keep it if you subsequently divorce is a common concern. This can be further complicated when the car is on finance. In this article, we cover the issues that people often have in relation to cars and divorce.
When you’re reliant on one family car and would struggle to replace it, deciding who gets to keep it if you subsequently divorce is a common concern. This can be further complicated when the car is on finance. In this article, we cover the issues that people often have in relation to cars and divorce.
If you have a family law issue and you are concerned that you may require legal advice to understand your options, contact specialist family law solicitor Joanne Major. Joanne is the founder of her specialist family law firm and has spent her 25-year legal career specialising in family and matrimonial cases.
Is a financed car considered an asset in divorce?
A car, even one on finance, may be considered a matrimonial asset if it was purchased during the marriage. If the car is on finance, then the outstanding amount of the loan would need to be deducted from the value of the car. In addition, if one party was unable to afford the car loan repayments by themselves, then this is something that would need to be considered as a part of the divorce settlement. Car loans and other vehicle finance products and divorce can be tricky to deal with, so this issue should be flagged early on with your legal advisor.
What are the different types of car finance?
There are several ways to finance the purchase of a car. The type of loan can often dictate how the division of such an asset takes place. Here are the main ones:
- Personal loan – this can be in one or both parties name, and is generally unsecured, meaning you don’t have to use another asset as security. If the car is deemed to be a matrimonial asset, even if the loan is in one party’s name, the debt will be considered a marital liability and dealt with accordingly. The car is likely to be considered a matrimonial asset if purchased this way.
- Hire purchase – you will usually put down a deposit to take the car away and then make monthly payments. In these types of agreement, you won’t own the vehicle until the last payment is made. The debt is secured against the car, so if payments cease, the loan company may take the car to recover the money owed. A car owned in this way is likely to be considered a matrimonial asset, although care should be taken to maintain repayments to save the car being repossessed, and the asset rendered worthless.
- Leasing – when you get a car lease, you never own the vehicle, you simply make regular repayments for using it. How much you’re charged is usually based on the value of the car, how long you’ll use it for, and any agreed mileage allowance. Cars used on a leasing basis, will not be considered a matrimonial asset because neither party owns it.
- Personal Contract Purchase (PCP) – these are now the most common forms of new car finance, but they can also be the most complex. With PCP, you won’t buy the car outright. Instead, you put down a non-refundable deposit towards the price, and borrow the rest. Monthly repayments are then made to cover interest and the cost of depreciation. At the end of the contract, you are given several options, including buying the car outright by paying the value of the car (usually agreed at the beginning of the contract), minus the deposit; trading it in for a replacement with a new PCP contract; or returning it with nothing more to pay.
Whether this will be considered a matrimonial asset largely depends on where you are in the contract. For example, if you are at the beginning of the PCP, you won’t own the car outright and, arguably, it would be unusual to include it in the matrimonial pot. On the other hand, if you/your spouse are at the end of the PCP and have indicated your intensions to purchase the car, depending on where you are in the divorce process, it may be capable of being considered a matrimonial asset. This would hinge on the timing of the divorce and purchase of the car.
What are the options for dealing with a car during divorce?
Assuming the car is considered a matrimonial asset, there are various options you can take to deal with the issue. The most common are:
- One party retaining the vehicle and the other taking different assets of an equivalent value
- Selling the car, paying off any outstanding finance and splitting the proceeds
- One party refinancing the loan in the name of the person who will keep the vehicle. However, this option requires consideration of affordability, interest rates, and monthly repayments.
The above assumes a broadly 50:50 division of the assets, but this is not necessarily always the case. While many people believe assets will be split evenly between them, the reality is that the court will take various factors into account when deciding a fair distribution of the assets.
Can You Sell the Financed Car and Split the Equity?
One of the most straightforward solutions for divorcing couples trying to resolve what to do with a financed car is to consider selling it. If the car has equity—meaning its market value is greater than the outstanding finance—then selling the car, settling the loan, and dividing the remaining balance can be a fair and mutually agreeable approach.
For example, if a car is worth £15,000 and the outstanding finance is £10,000, the couple may choose to sell the vehicle, pay off the loan, and split the remaining £5,000. This approach can prevent disputes and avoid one partner being left with an asset (and a liability) they neither want nor can afford.
However, problems often arise when the car is in negative equity. If the car’s market value is lower than the outstanding finance, selling may leave the couple with a shortfall. Let’s say the car is worth £8,000, but the finance agreement still has £12,000 owing—selling the car would leave a £4,000 debt that someone has to pay. In these scenarios, it is important to decide who is in a better position to absorb the loss or whether this should be offset against other parts of the financial settlement.
When one party keeps the car: needs vs. wants
In many divorces, one party will want to keep the car, especially if it is essential for daily responsibilities such as transporting children to school, attending work, or supporting an elderly relative. In family law, the welfare of children takes precedence, and practical needs are considered heavily by the court when deciding who should retain what assets.
So, if one spouse primarily uses the vehicle for school runs, medical appointments, or work-related commuting, it may be reasonable for them to retain the car, even if it still has finance owing. The court or the parties through mediation may agree that the spouse who needs it more should keep it, provided the overall financial arrangement remains fair.
This scenario often results in an offset. For example, the spouse keeping the car might receive fewer matrimonial assets or a smaller share of the proceeds from the sale of the marital home to account for the value they’re gaining through the vehicle—even if it’s still under finance.
It is important to remember that if the car finance is a Personal Contract Purchase (PCP) or hire purchase agreement, ownership may not pass to the individual until the final balloon payment is made. So, the practical use and financial responsibility of the car may fall on one person, while legal ownership might not yet exist in full. This creates complexity and underscores the importance of legal advice when treating the car as an asset.
Handling outstanding car finance in divorce
Dealing with car finance agreements requires a nuanced understanding of who is legally and contractually responsible for the debt. Even if both spouses use the car, if the finance agreement is in one party’s name, they will be liable for repayments. The finance provider will generally not split this responsibility or allow both parties to share liability post-separation unless a formal refinancing or agreement transfer is executed.
Here are some routes divorcing couples can consider:
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Transfer the finance to the spouse who wants the car: This depends on the finance provider agreeing to the transfer, which typically requires a credit check on the individual taking over the payments. Often, the provider requires the party to refinance.
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Refinance the car: One party may be able to refinance the vehicle in their sole name and remove the other spouse from the agreement, assuming they qualify for the finance independently.
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Include the finance in the settlement: The spouse who is not taking the car may receive a higher share of another asset to account for the other partner keeping the vehicle and taking over the finance.
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Agree to share payments temporarily: In short-term arrangements (especially during separation but before the divorce is finalised), both parties may agree to continue payments jointly until a long-term solution is reached.
If you reach an agreement between you, it should be formalised in a financial consent order. This gives it legal standing and avoids future disputes.
Is a financed car an asset or a liability?
A car as an asset may not seem like a traditional asset when it’s under finance, but it still carries economic value and practical importance. If it’s leased or on a PCP plan, it may be better described as a liability with attached rights of use, rather than an asset in the usual sense. Nevertheless, the vehicle’s value, use, and associated debts must be disclosed during financial disclosure under Form E.
The reality is that the car as an asset—even if not owned outright—may need to be weighed as part of the division of marital property, just like pensions, savings, or the family home.
Protecting yourself with prenuptial and postnuptial agreements
One of the best ways to reduce confusion and conflict about cars and other assets during divorce is to agree in advance who will be responsible for them. Prenuptial and postnuptial agreements can specify:
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Who keeps the car in the event of separation
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Who is responsible for paying off the finance
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Whether the car should be sold and the proceeds divided
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Whether new vehicles acquired during the marriage are to be treated as marital or individual property
Although prenups and postnups aren’t automatically enforceable in England and Wales, courts are increasingly giving them significant weight—especially where both parties received independent legal advice and disclosed their finances honestly.
To learn more about these protective agreements, visit Wiselaw’s post on prenuptial agreements. Including provisions about vehicles in these documents can save time, legal fees, and emotional strain later.
Mediation: A constructive approach to car disputes
Mediation can be a valuable option for resolving disputes over cars and other assets. It encourages couples to communicate and find compromises without resorting to the courtroom. With the help of a mediator, couples can explore options such as:
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A temporary shared-use arrangement while one party seeks an alternative vehicle
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Agreement on how to manage ongoing finance payments
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Flexible arrangements for refinancing or vehicle replacement
Mediation also helps preserve a co-operative relationship, which is especially important when children are involved and ongoing communication between parents is essential.
What happens if the finance is in your spouse’s name?
Debts will also need to be considered in relation to your assets and liabilities as part of your divorce settlement negotiations. This can make things complicated if the car you usually drive has a loan or finance in your spouse’s name. Exactly what would happen depends on the facts of the case, and the type of finance taken out.
Essentially, if the car has been used by both parties for family purposes, then no matter whose name the loan or finance is in, the car is likely to be considered a matrimonial asset, alongside the debt associated with it. This is likely to lead to the value of the car being set against the remaining loan left to pay, with the difference between the two figures either being added into the asset pot, or in the case of a deficit, offset against other assets.
If you had a car loan in both names and both contributed towards the repayments, then these facts will need to be taken into account when deciding what is a fair settlement.
What happens if the car is registered in my sole name?
Whilst it may seem like a car that is registered in your sole name should automatically stay with you during the divorce, if it is considered a matrimonial asset, then its value will still need to be factored into the division of assets.
Final thoughts
When deciding how to handle a car as an asset during divorce, there are multiple pathways depending on your financial situation, the structure of the car finance, and your family’s practical needs. Whether the car has positive equity, is in negative equity, or is simply vital to a family’s routine, it must be considered during the financial settlement process.
Selling the car, refinancing, assigning the vehicle to one party based on necessity, or offsetting the value with other assets are all viable options. Informed legal guidance and, where applicable, pre-existing agreements can ease the decision-making and ensure fairness for both parties.
Legal advice and professional support, including mediation and family solicitors, can help divorcing spouses come to a resolution that meets both parties’ needs—both financially and practically.
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