Assigning automobiles after a divorce
Most divorces involve dealing with automobiles
The United States has more motor vehicles per capita than any other country in the world. The automobile is deeply ingrained in our culture as a necessity and can be a luxury and a status symbol. Access to private transportation will be necessary in most cases, and this means that most divorces will entail dealing with automobiles.
The valuation of automobiles is usually much simpler than valuing larger assets such as houses or businesses. This is because there is a huge market that deals in automobiles, and the variables that effect value are finite.
By example, a contrast can be made between houses and automobiles. A house has a unique location that contributes to or detracts from its value. A house can have a virtually unlimited number of options such as lawn sprinkler systems and acres of ceramic tile. A car does not usually have any truly unique attributes. It shares its attributes, including options, with hundreds of thousands or even millions of other vehicles. This means that there is a huge data base from which average values can be obtained.
The process for valuing an automobile
As in the case of a house, the means of valuing a car can follow a structure.
The first level is by agreement. That is, the parties can seek a consensus on the value of the vehicle(s) for use in the marital estate. However, this may involve uninformed estimates on the part of either or both parties.
The best alternative is to take advantage of automobile valuation services such as National Automobile Dealers Association (N.A.D.A.) Guide or Kelly Blue Book. Both of these services as well as others are available on-line and are very easy to use. Both parties may obtain values from at least two services. That way, both parties will have first hand knowledge of the valuation process and, if the same information is entered by both parties, they should get the same or similar values. The values obtained can then be averaged, or the couple can agree on a value for use in the summary process. When the couple is performing a vehicle valuation, the condition of the vehicle is often called into question. The amounts obtained from the various guides do not adjust values due to significant body damage or mechanical problems. The effect on value is determined by having a body repair shop or a mechanic estimate the cost of bringing the vehicle up to a fair or reasonable (not perfect) condition. The estimates are then used to reduce the value of the vehicle before it is put into the marital estate.
As with a house, the valuation procedures can advance from the market analysis approach to the formal valuation process. This step may include contacting a dealer for a value quote. The problem with using a dealer is that there may be significant confusion on the standard of value that the dealer applies in placing a value on a vehicle. For example, there is one value that the dealer may quote which is what he or she will pay for the vehicle. This value will be below fair market value, so the dealer can make a profit on the transaction. The dealer can also quote trade-in value. This is the value the dealer will allow when the vehicle is to be traded for a new vehicle. This amount will again be below fair market value in order to allow the dealer to make a profit. The dealer may also understand the concept of fair market value and quote an amount that will likely be realized if the car was sold on the open market. Finally, the dealer may have had a relationship with at least one of the parties in the past. He or she may wish to continue that relationship in the future and select a value that will enhance the possibility of future sales, incorporating a prejudice that will benefit either the husband or the wife. This confusion over standards of value can make dealer representations suspect.
If there is significant disagreement over values that have not been resolved by market analysis or dealer representations, the process can move to paid appraisal. Paying someone to appraise a vehicle when significant, credible, and free market analyses are available is a questionable use of resources. However, in some cases this will be the only means to resolve a disagreement. In the case of custom or very high-end vehicles, an appraisal may be the only means (other than outright sale) of determining a fair market value for a vehicle. Especially in the case of custom vehicles, beauty is in the eye of the beholder. That is, some people with too much money or too close of an attachment to their youth may pay a price for a vehicle that is beyond all reasonable expectation. Alternatively, the market for high-end and custom cars is not large. The estimated sales price may never be obtained, or it may take considerable time to sell a vehicle at what an appraiser determines is a fair price.
Leased vehicles are not uncommon. There can be significant arguments over whether or not a lease is an asset or a liability. A lease is an asset in that the lessee has use of the equipment. It is a liability in that the lease payments are contractually required.
There are also true leases and lease purchases. In a true lease, when the lease is over, the equipment goes back to the owner of the equipment, the lessor. In a lease purchase, when the lease is over, the equipment goes to the new owner, the lessee. A key component in identifying a lease purchase is the amount of the final payment a lessee has to make at the end of the lease period in order to get title to the equipment. For example, if the final payment is $1.00 or $10.00 it is likely that the financial arrangement was a lease purchase. That is, it was the intent of the parties to actually transfer title to the equipment from the lessor to the lessee. If the buyout at the end is $5,000, it is unlikely that a sale and purchase was the prime intent of the arrangement.
As a general rule, true leases are excluded from consideration in the marital estate. This is because the asset value (the ability to use the asset) is offset by the liability (required lease payments) that is incurred. This handling is also consistent with generally accepted accounting principles which are familiar to many courts.
Alternatively, lease purchases are treated like any vehicle obtained by making a down payment and then making payments on a note to the seller or a financial institution. The vehicle is valued as indicated above, and the amount is entered as an asset into the marital estate. The liability is determined by the total of the remaining lease payments plus the buyout provision at the end of the lease.
Automobiles used by children
It is not unusual for the teenage children of divorcing parties to have automobiles that are used exclusively by them. It is also not unusual for parents to retain ownership of vehicles that are used by their children through college and beyond.
Technically, these are assets of the marital estate and are subject to division. As a practical matter and when given the option, parents do not usually want these assets included in the marital estate. They want the children to retain the vehicles because they are parents and consider it their duty or, at least as important, because they do not want to drive the children wherever they want to go.
The actual ownership of the vehicle is probably not important, and this type of agreement can plant the seeds for further agreements. However, the costs associated with the vehicle can be substantive and should be considered as part of the budgeting process.
An exception to this recommended general handling of vehicles used by children occurs in the case of exceptionally valuable vehicles. For example, restored, custom, or extremely high value vehicles may exceed the need for basic transportation of a child. In these cases, inclusion of the vehicle in the marital estate is the preferable handling.
Title to automobiles
From an economist’s standpoint, who has the title to a vehicle does not matter. If the automobile was purchased by the economic entity of the marriage, it is marital property and divisible. This does not mean, however, that local regulations or attorneys cannot make an issue out of title.
Preferably, economic substance should take precedence over legal form or argument. Local rules, arguments, and prejudices should only be considered when the divorce is headed to a court of last resort. Otherwise, the agreement of the parties should take precedence over whatever legal wrangling might be envisioned.
However, legalities can interfere with the intent of the parties or complicate things after the divorce. For example, a vehicle title left in both parties’ names may cause problems for the person who takes the vehicle in the divorce. When the vehicle is sold or traded, cooperation of the ex-spouse may be required to transfer title. This problem can be alleviated by making provisions for the transfer.