CAR CRAZY: Dividing Cars in Divorce
After home equity and retirement Americans have major investments in steel, aluminum and plastic. So much so that we see advertisements offering to help us track the value of our cars, as if they were “investments.” At the risk of being rude, let me suggest that you might better invest in Birkin handbags or crypto. Note well that in 2024 the average cost of a new car, all expenses considered is $1,000 a month.
Nowhere is self-deception more prevalent than in the world of collectibles. And cars are especially problematic because an automotive investment is often viewed as a transportation investment. A shortage of new cars during the COVID pandemic prompted a sharp rise in used car values. Some of that is still around.
Meanwhile, hope triumphs over expectation in the sense that Americans adopted the view of “auto as investment.” It’s a nice theory but the facts don’t bear it out. Today one in four Americans is driving an underwater car; one where the debt exceeds the value of the car. At least with a lease, you understand that you are just renting the car while insuring, gassing and maintaining it. You can still go negative when you arrive for turn in day and they look at mileage and condition. But you also have some control over that.
This is astounding to recite but trucks are almost 80% of all vehicle sales. By definition this means more material cost to produce and usually more fuel to consume. The material cost also signals more cost to insure the vehicle. And when fuel prices rise, there is more pressure on re-sale prices because most of the trucks I see on the roads don’t really have any regular cargo to haul other than the machismo of the truck owners.
That’s an expensive hobby about to become more so. Almost every domestic car and truck company is highly reliant on materials from abroad. And those will be made more expensive because of tariffs. The other element which escaped me until I read it was how expensive materials cause increases in car insurance. Why? Because when you happen to ram into someone else or they hit you, the materials to fix the vehicle are going to reflect the cost to import them. Even if you keep your 1985 Ford F-150 rather than buy any of the “newfangled crap,” your auto insurer has baked into your bill how much real steel will be required to fix you up after a collision.
In a divorce setting, it makes no sense to get a typical car appraised. Lawyers typically look on line at places like Kelley Blue Book to come up with values and interpolate between the “cost to buyer” and “price to seller.” This can also be expressed as a “private party value.” Then we apply the objective loan balance outstanding.
Thus, in equitable distribution, one spouse may walk away with a car with $15,000 in value while the other leaves with a car that is $10,000 underwater. Then, as if that’s not causing enough anguish, we have the matter of who signed the leases or notes to pay the underwater car. The all too typical situation is one where wife has the modest car and husband had to have the super duty truck because they needed to feed a water softener in the house. He’s stuck with the underwater truck and $1,000 a month in payments. But she signed the note to buy the truck. When he doesn’t pay on time, her credit rating gets dinged each month. He always pays before the truck is listed for repossession but every month, he effectively bangs her credit score because she is on the note. When she does need credit for a new car or a house, the lender hits her for another 3-4% because she has become a credit risk because of the truck. If that bad credit forces her to pay 2% more than best rates on a new 300,000 mortgage, the cost she will endure for that over 30 years is more than $150,000.
The lessons here. Cars are a means of transit that easily become an indulgence. Never jointly title a car and never… ever…. sign any loan or lease for a car that is not full-time yours. When evaluating a car acquisition don’t forget to consider fuel, maintenance and insurance.
Here’s a link with data about average car debt and loans today. Dr. J. (Julius Irving) and Sir Charles (Barkeley) are just there to entertain.