My Ex-Spouse Cosigned a Loan - Am I Liable?

By Ron | Jul 7, 2008

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I recently received an email from a reader who was concerned about a loan that her ex-husband cosigned with his nephew.

Hi, Ron. A couple of months ago, my ex-husband cosigned a loan with his nephew to help him get a pickup truck to use in his lawn care business. He hasn’t been able to get enough business to keep him afloat and my ex-husband is concerned that he will be forced to make the payments. (Yes, he and I still talk and are cordial with each other) I’m concerned that I may be held liable since he cosigned the loan while we were still married. Do you know if this is the case? –Jenn

Well Jenn, I want to encourage you to seek professional financial advice immediately. There are some details that are important in making a determination of liability. One of those details is in which state you live because you could be responsible, (even if you didn’t co-sign) if you live in a community property state.

Those states are:
1. Arizona
2. California
3. Idaho
4. Louisiana
5. Nevada
6. New Mexico
7. Texas
8. Washington
9. Wisconsin

If you don’t live in one of the nine community property states, you may not be legally responsible, and it won’t show on your credit report, but, please check with a financial professional before assuming this is the case.

There are only two ways for your ex-husband (and YOU if you live in one of those states) to get released from the obligation to repay the loan:

Refinancing the loan in just your husband’s nephew’s name. The nephew will have to have a decent enough credit score to get the financing though.
Pay off the loan.

There is no magic way for your ex-husband or you to be released from the obligation to repay the loan, despite the claims of late night attorney infomercials. The finance company probably won’t change the terms of this existing loan agreement unless it is in their favor. Why would they? As it stands now, they have two people on the hook, potentially three if you live in a community property state. Two or three people have a better chance of coming up with the payoff funds than one.

I would recommend you and your ex-husband read The Federal Trade Commission’s guide on Co-signing A Loan. Living with a poor decision and working through it after the fact is one of those things we learn with experience…and one of the reasons I started The Wisdom Journal.

Of course it’s too late now, but for future reference, I recommend that you avoid cosigning any loan. When you’re asked to cosign a loan, you’re taking a risk that a professional lender won’t take. If the borrower met the criteria, the lender wouldn’t require a cosigner. Never forget that one fact.

I wish you the best and let me know if I can help in any other way.

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3 Comments so far

Patrick (63 comments.) July 7, 2008 3:55 pm

Wow… Very unfortunate situation. I hope it works out for the best…
fathersez (11 comments.) July 14, 2008 8:47 am

I think co-signing or guaranteeing a loan is even worse than borrowing, since you get the full obligation but none the benefits.

I am really shocked to hear that a 3rd party (who did not sign anything) maybe liable, like in the so called community property state.

There must have been a really good reason for having this law. I just can’t think of any.
Vi July 20, 2008 11:58 am

The reason for this law is, is that, if someone wants something that they do not have the money for, yet still want it, and you know someone who has the lending ability, you have the mix for this arrangement. It goes back to fudel times when “Lords” had the money and property. You had to have a way to get what you wanted and they had a way for you to get it as long as you had no problem with what they wanted or required from you in terms that favor them not you. It is a matter of capitalism. Nothing for nothing, everyone pays, just some pay more dearly than others when a person willing to go for their exorbitant terms to get what they “want”.

The set-up is for the lender to not lose and in the long run come out ahead should one faulter on the deal/loan. If you faulter it allows for the owner/lender (by default) to get back what was originally lost on top of what was gotten in time payment arrangements along the way.

Ex:

You buy a home or car
Signor/spouse/co-signor or Signor/co-signer sign on the dotted line
You can no longer make the payments
You go into default
Signor/spouse/co-signor or Signor/co-signer is responsible
Your item gets repossessed/foreclosed
The owner now has to take back a depreciated item
The owner now, also , has to find a new buyer and loses income in the meantime
The original owner loses what is a steady agreed upon income
The original owner resells and starts the process all over again

Kind of like getting paid multiple times for the same item depending on the item being sold
Owner comes out ahead and you come out losing twice by losing the item and the money you paid in time payments

Signor/spouse/co-signor or Signor/co-signor is responsible. Take notice of the order of signor’s. The grantor is taking a chance by selling you somnething. S/He secures his/her end by making you sign a legal document so that should you default he has recourse. It goes without saying that if you cannot get something on your own credit then what is the grantor supposed to get out of you if you do default. So, by having a co-signor, the co-signor then becomes the primary one responsible as he is saying or making a statement that he feels the person is good for the money and will make the payment(s), (he/she is vouching for this person) and if he/she does not then he will. That is what co-signing means and states when you put your name on the dotted line. You accept responsibility for this person if and when they should default on making any of the payments. This is the reason you should not put your name on the doted line unless you have excess money to lose should it happen and it happens more than you think.

As to the spouse also being responsible even if they were not aware or were in the process of getting a divorce and such, marriage makes you one unit and therefore both liable as if it you were still one/single. An important reason to make a seperation legal by doing it through the court/legal system, it may give you more of a fighting advantage to not be included by being able to show proof that they did it knowing you were splitting up and did it out of spite to create bad credit for the unknowing partner. Not to say this will work in all circumstances, but it at lease shows the judge you were not aware and a judge may give lienientcy due to such.

The one who possesses what you want is going to make sure they do not come out a loser seeing you want what they have.

So, by being married you are each responsible for the other. Same as you are always to know everything that goes on under your roof and are held responsible.

Same as you are responsible for the actions of your children’s actions.

Someone is always going to be held responsible no matter what the situation.
Hence the reason to not take lightly co-signing for anyone and to be aware of everything and anything that goes on under your roof as you will be held responsible in one way or the other.

Hope this helps to make it more clear as to why and how one becomes responsiblefor anothers debt in spite of knowing nothing about it.