Expert: Michael Brotherton - 12/7/2008

Question
We live in Michigan.  My husband is 65,on SSD and has a pension from one of the auto companies. I am 54, and have a job earning around 50k.  We own two homes, one paid for from an inheritance from my mom, and the other might now be the value of what we owe due to the recent downward turn in home prices. When my husband was diagnosed in 2005, we went to a lawyer who said we should own my mom's home joint. Last week, against my judgement, my husband co-signed for a car loan for my son who is 28. What can creditors take at this point if my son defaults? If my husband should pass away, what is considered his estate since everything we own is joint, and what obligation would I have if any?  Can they touch his life insurance, or the home that is free and clear? Should I transfer the home that is paid for back into my name?  I made my son sign a paper stating he would sell the car if there were financial hardship. Would this be a legal document? I am very worried about this situation.  Please help.

Answer
I understand your concern. I do not like co-signer loans. They never work out and the co-signer ends up paying the bill.

I also disagree with your attorney. You would be better off setting up a living trust and placing the property under the trust. It is perpetual which means if something happens to you or your husband the trust will continue in perpetuity and the deed is never affected. Creditors cannot touch it and the trustee, you or your husband, have total control of the trust.

That said, and to answer your question, if there is a default on the loan a creditor may file suit, obtain judgment, and place a lien against the property. If there is equity they could potentially force the sale of the property. Although rare that a creditor does this, if the debt is substantial they very well could. The property, if jointly owned, is still part of his estate. Although there are some states that would restrict foreclosure in this case he still owns half of that property and the lien would be valid. If he were to pass away the estate would have to pay the debt. They cannot touch his life insurance depending on the beneficiary it would go to them, not the estate.

You may also put the property back into your name but if something were to happen to you there is still the issue of your estate passing to the Aires. Make sure you have a will. This is very important in this entire situation. Your best bet would be to consult an attorney for estate planning and asset protection. It would be well worth your effort.

We also do estate planning and asset protection. If you need assistance feel free to call my office 937 372 8581.