Am I responsible for my husband’s $60,000 car loan if he dies?

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Dear Penny,

I am happily married (25) and medically retired (58). My husband earns a lot of money. We meet all of our basic needs, but his pension is severely underfunded.

We had to get out of debt recently and now we only have one interest free credit card on which we still owe about $18,000. Our house will be paid off in about four years, and I send an extra $300 every month.

My husband is very determined to buy an expensive new car that costs around $60,000. I can’t talk him out of it, even though I tried! He’s ok with working until he’s 70 and would use his old car as a down payment and pay no extra money.

I worry if anything happens to him before the new car is paid for. If he dies and I’m not a co-signer, will that protect me? I don’t want the car, or the hassle of trying to sell it if he passes. I also worry if he doesn’t make it but needs a long-term facility or a nursing home.

How can I protect myself for my future? He has several health concerns, but so do I.

-Mrs. M

Robin Hartil [ The Penny Hoarder ]

Dear Mrs M.,

Your husband may be nearing retirement age, but he has to grow up already. A $60,000 car is something you buy when your retirement accounts are plush and you have little to no debt. But I know I preach to the choir.

To answer your question: the impact on you largely depends on the state in which you live. If you live in one of the 41 states that follow common law property rules, you wouldn’t be responsible for the debt until your name isn’t 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 liable for any debt incurred during the marriage.

In a common law state, if your husband died of the money on the car, the car and the loan would become part of his estate. The estate — specifically, whoever is the executor of the estate — would be responsible for making payments out of your husband’s assets during probate.

If you inherit the car along with your husband’s other assets, you can simply contact the lender and hand it over. The lender could still file a claim against the estate. But since your name won’t be on the loan, you wouldn’t be sued for the debt. Your credit score would not be affected. You may be able to do the same if your husband becomes disabled. It would hurt his credit, but it wouldn’t affect yours.

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But if you live in a community property state, the lender could sue you for the debt even if you don’t co-sign. If your husband doesn’t have adequate life and disability insurance to cover car expenses, there’s a real risk to your credit and finances.

No matter where you live, this purchase is a very bad idea. Your husband may think that his plan to work until he’s 70 settles everything. But the reality is that many people are forced to retire earlier than expected due to medical issues or job loss. That prospect is daunting, especially since you say his pension plan is seriously underfunded. The money your husband would spend on a car must be used to catch up on retirement savings.

I know you tried to persuade your husband not to make this purchase. But I wonder if he would be more willing to listen to a neutral third party. It may be helpful to hire a paid financial planner to assess your retirement planning and establish a specific savings goal. Maybe your husband will see how much harder it would be to achieve that goal with substantial car payments.

If that doesn’t work, maybe the two of you could find a compromise. At the very least, could he wait to buy that car until you’ve paid off the credit card? This 0% interest rate is not going to last forever. Paying off the balance before it starts earning interest is a must in this case. As new car prices continue to skyrocket, your husband can also save some money if he can be a little patient.

I’m afraid there’s nothing you can do if your husband is really determined to make this ridiculous purchase. But hopefully he’ll come to see that no car is worth putting your retirement in jeopardy.

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Robin Hartill is a Certified Financial Planner and Senior Writer at The Penny Hoarder. Send your tricky money questions to [email protected].

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