Why Car Leases Need to Be Addressed in a Separation Agreement
Shared Financial Responsibility
Car leases are usually signed under one or both spouses’ names. If both parties are listed, they share equal responsibility for making payments until the lease ends or is legally transferred. Even if only one spouse drives the car, the other may still be liable if their name is on the agreement. Including the lease in your separation agreement ensures that payments, insurance, and maintenance obligations are assigned fairly and that neither party is caught off guard with unexpected financial burdens.
Credit Impact
Missed or late lease payments can have serious consequences for both spouses’ credit ratings. Because lenders report to credit bureaus, any default on the lease could damage both parties’ financial reputations, affecting their ability to secure future loans, mortgages, or even rental agreements. By addressing car leases in the separation agreement, separating spouses can clarify who is responsible for making timely payments, protecting both credit scores during and after the transition.
Avoiding Future Disputes
Failing to resolve vehicle use and lease obligations during separation can lead to conflicts down the road. For example, if one spouse drives the leased vehicle but does not maintain insurance or misses payments, the other spouse may still be held liable. Including a clause in the separation agreement that outlines who keeps the vehicle, who pays the lease, and what happens if payments are missed can save both parties from stressful legal disputes and potential court involvement later.
Determining Who Keeps the Vehicle
Assessing Need and Usage
One of the first steps in deciding who should keep a leased vehicle is looking at which spouse relies on it the most. For example, if one spouse needs the car for commuting to work or transporting children to school and activities, this practical need may weigh heavily in their favour. Courts and mediators often encourage solutions that prioritize stability for children, which means the spouse handling day-to-day childcare might be given stronger consideration for vehicle use.
Lease Term Remaining
Another important factor is how much time is left on the lease. If the lease is close to expiring, it may make sense for the spouse keeping the car to take full responsibility until the end of the term. On the other hand, if there are several years left, discussions may involve whether to continue the lease, buy out the vehicle, or explore early termination options. The buyout value and mileage limits can also influence the decision, as exceeding kilometre allowances can create additional financial obligations.
Negotiation Factors
Vehicle costs can be balanced against other financial matters during separation negotiations. For instance, if one spouse takes over full responsibility for the car lease, this might be offset by adjusting spousal support payments, dividing other marital assets differently, or reallocating household expenses. Approaching the vehicle decision as part of the overall financial picture helps create a fairer agreement and reduces the risk of future disputes.
Legal and Financial Steps for Car Lease Transfer
Contacting the Leasing Company
The first step in dealing with a leased vehicle during separation is to contact the leasing company directly. Each company has its own policies regarding lease transfers, buyouts, or early terminations, and these terms are legally binding. The leasing company will outline the necessary paperwork, approval requirements, and any limitations on transferring the lease to one spouse alone. By clarifying these requirements early, separating spouses can avoid misunderstandings and ensure the agreement complies with contractual obligations.
Transfer Fees and Conditions
Most leasing companies charge a transfer fee when a lease is moved from one individual to another. This fee can range from a few hundred dollars to more, depending on the lease provider. In addition, the person assuming the lease will typically need to undergo a credit check to prove they can meet the payment obligations.
Third-Party Lease Takeovers
In some cases, neither spouse wishes to keep the leased vehicle. If this happens, it may be possible to arrange for a third party—such as a family member, friend, or even a stranger found through a lease transfer marketplace—to assume the lease. While this can relieve both spouses of the financial burden, the leasing company’s approval is still required. It’s also important to confirm that liability for payments and damages is fully transferred so that neither spouse remains responsible for the vehicle after the takeover.
How to Document the Agreement in the Template
Clear Clauses for Responsibility
When including a car lease in your separation agreement template, it is essential to write clear clauses about who is responsible for the remaining lease payments. This should specify whether one spouse will take over the lease entirely, or if payments will be shared until the lease expires. Using precise, plain language prevents ambiguity and ensures that both parties understand their financial obligations.
Insurance and Registration
Ownership of insurance and registration must also be updated in line with the lease transfer. If one spouse keeps the vehicle, the separation agreement should require them to place the car insurance and vehicle registration solely under their name. This avoids liability issues if the car is involved in an accident, ticket, or other incident after separation. Clear documentation also protects the spouse no longer using the vehicle from unexpected costs or legal responsibility.
End-of-Lease Obligations
A well-drafted separation agreement should also anticipate the lease’s end. Responsibility for excess mileage charges, damages beyond normal wear and tear, and decisions about whether to buy out the car or return it should all be spelled out in advance. Addressing these issues in the agreement reduces the likelihood of disputes when the lease term ends and ensures that both spouses know what to expect.
Independent Legal Advice and Enforceability
Importance of ILA
Independent legal advice is one of the most important steps in making sure your separation agreement stands up in Ontario. Each spouse should consult their own family lawyer before signing. This ensures both parties fully understand their rights, obligations, and the long-term financial consequences of assuming or transferring a car lease. Without ILA, an agreement may be vulnerable to legal challenges later on, particularly if one spouse claims they were pressured or did not understand what they were signing.
Making the Agreement Binding
For a separation agreement to be legally binding in Ontario, it must be properly signed, witnessed, and dated. Each spouse should keep an original or certified copy for their records. Storing the agreement in a safe but accessible place, such as with a lawyer or in secure digital storage, ensures that it can be produced if enforcement becomes necessary. When car leases are clearly addressed within the agreement and all proper formalities are followed, both parties can rely on its enforceability, reducing the risk of future disputes.
Updating the Agreement if Circumstances Change
Lease Buyout or Early Termination
Car lease arrangements can change during the course of separation or divorce. For instance, one spouse may later decide to buy out the lease, or financial circumstances might make early termination the best option. By including a clause in the separation agreement that explains how these events will be handled, couples can avoid returning to negotiations or court. Clear terms should outline who pays the buyout amount, how any penalties are divided, and what happens if the vehicle is sold after buyout.
New Vehicle Acquisitions
It’s also important to anticipate future changes, such as one spouse entering into a new lease after separation. Adding language that encourages open communication about new vehicle financing ensures that neither party’s credit or joint financial responsibilities are inadvertently affected. While new leases are typically taken in one spouse’s name alone, setting expectations in the separation agreement helps maintain transparency and reduces the risk of financial overlap or misunderstandings.
Numan Bajwa is the Founding Partner at Bluetown Law – Family Lawyers. He earned his Juris Doctor from the University of Detroit Mercy School of Law (2011–2014) and holds an Honours degree in Criminology from the University of Windsor (2003–2008).
