Determining a Vehicle’s Actual Value During Divorce

Vehicles as Community Property

In community property states such as Arizona, each spouse is entitled to an equitable one-half interest in all assets acquired during the marriage. In the case of some community assets, such as bank accounts and retirement accounts, this division is relatively straightforward – the balance or value of the account as of a certain date is determined, and each spouse receives 50% of that value (assuming there is no “separate property” portion to first subtract). However, in the case of other community assets, such as vehicles, this division can be more complicated – and thus more likely to create contentious issues during divorce.

First, it must be determined whether the vehicle is considered to be separate or community property. It is often mistakenly assumed that vehicles and other property are granted to the spouse who holds sole title. However, even a vehicle owned by one spouse alone may still be community property. For example, if income from either spouse was used to pay for the vehicle during the marriage, it becomes community property. Upon divorce, each spouse is entitled to fifty percent of the value of the vehicle. If spouses agree, they do not have to sell their vehicles and divide the proceeds; instead, they can determine the total equity in all their vehicles (i.e., the current fair market value minus the amount still owed on any loan), and then one spouse receives cash or other property for the difference in equity between the vehicles. Alternatively, they can agree to each keep their own vehicle regardless of any imbalance in equity between the vehicles.

Determining the Fair Market Value

No matter what a Scottsdale divorcing couple may decide as to the disposition of their vehicles, it is prudent for them to understand the fair market value of each vehicle acquired during the marriage – and thus be able to make informed decisions about how to deal with their vehicles.

Unlike bank accounts and retirement accounts, there are many factors to consider when determining the value of a vehicle. First, the fair market value (FMV) must be determined. The FMV can be found in either kbb.com or Edmonds.com, which are online automotive vehicle valuation companies that have been widely used in the automotive industry for many decades. You can use the trade-in value or the private party value, so long as you use the same one for all of the vehicles involved. Alternatively, you can visit several reputable car dealers and ask how much they would pay for the vehicle (assuming that their quotes will be a little lower than the actual value of the car). You can also look at newspaper or online advertisements for cars that are of the same make, model and year and have comparable mileage and features.

Other Considerations

Should upcoming repairs on a vehicle be taken into consideration, particularly on an older vehicle? It may be wise to have your vehicles inspected during the divorce process. That way, if there is any major work required on either vehicle that is not covered by a warranty, parties can decide whether to factor in those costs when making their decisions.

What options are there when a vehicle loan is in the name of one spouse but the vehicle will be retained after the divorce by the other spouse? If it is not a possibility to refinance or replace the loan in the borrower spouse’s name alone, couples may elect to include an indemnification provision in their divorce settlement agreement. This type of provision will not relieve the borrower spouse from liability to the lender, but it will give this spouse the right to obtain reimbursement should his or her ex-spouse default on any loan obligations.

What happens in the case of a vehicle owned by one/both spouses but driven by their teenage child? A divorcing couple can choose to value this vehicle as community property and include it as part of their division of assets. Alternatively, they may choose to gift it to their child and not include it in their division of assets.

What about a leased vehicle? A leased vehicle is not an asset subject to division in divorce. Rather, the lease obligation is a debt which must be dealt with along with any other debts incurred during the marriage.

In summary, there are many considerations when determining the disposition of a vehicle during divorce. Central to any decision is determining the value of the vehicle. As with any decision made during divorce, it is important that each spouse be open and forthcoming with one another, and try to resolve any disputes as amicably and inexpensively as possible. One way to do this is to meet with a professional Scottsdale mediator, who can ensure that both spouses have all of the relevant legal and financial information regarding their vehicles (and other property), and can help them to communicate and negotiate effectively to make fully informed decisions.