While the concept of a reverse mortgage is often associated with bolstering financial stability for retirees, its utility extends beyond mere retirement planning.  Beyond its ability to aid those meeting the 62-year-old age requirement in enhancing monthly cash flow or eliminating mortgage payments, there exists a lesser-known yet significant application: navigating divorce situations.

For couples facing the complexities of asset division, particularly when substantial home equity is involved, a reverse mortgage can serve as a vital financial tool.  By tapping into home equity, it offers a lifeline during the intricate process of asset distribution, alleviating financial strains and fostering equitable living arrangements for both parties.

In this article, we dive into the often-overlooked role of reverse mortgages in divorce scenarios, exploring how they can streamline financial negotiations and provide a pathway to a more secure post-divorce future for all involved.

ARLO explains reverse mortgages and divorce

Maintaining Independence: Reverse Mortgages for Separate Living Arrangements

Navigating a separation later in life often brings significant financial adjustments, particularly when it comes to sustaining a household once supported by dual incomes. In such circumstances, a reverse mortgage emerges as a valuable solution, offering flexibility and financial stability during this transitional phase.

A reverse mortgage provides individuals with the freedom to access their home equity in various ways, tailored to their specific needs. Whether opting for a lump sum, periodic payments, or a combination, the reverse mortgage can empower individuals to manage their finances effectively, especially when one spouse intends to maintain residence in the home but struggles with monthly mortgage obligations.

Consider this scenario: You own a $300,000 home with an $80,000 mortgage balance at age 72. With a reverse mortgage, you can access over $200,000, using $80,000 to settle the existing mortgage while retaining $120,000 for other purposes. Notably, funds can even be disbursed to the departing spouse at the loan’s closing, facilitating a smooth transition. It’s essential to note that during the loan term, the departing spouse must be removed from the home title, a process often streamlined alongside loan initiation.

However, it’s important to recognize that like all reverse mortgages, repayment becomes due upon the borrower’s relocation or passing.  Additionally, borrowers must fulfill obligations such as property tax and homeowners insurance payments throughout the loan duration.  This arrangement enables one spouse to enjoy a mortgage-free existence while the other can allocate resources towards savings or other financial priorities, fostering financial independence and stability for both parties.

Exploring the Reverse Mortgage for Purchase Option During Divorce

Amidst a divorce, a ‘Reverse Mortgage for Purchase‘ can be a strategic financial tool if neither spouse wants to stay in the family home.  This innovative option combines the purchase of a new home with the benefits of a reverse mortgage, all in one transaction.

This approach can be particularly advantageous for a divorcing couple. It enables one spouse to seamlessly transition to a new residence using a reverse mortgage, while the other may receive a portion of the cash proceeds. This solution is especially fitting for those considering downsizing.

Leveraging a reverse mortgage for purchase can simplify the property division process in a divorce, ensuring both parties can move forward with their new living arrangements and financial independence.

If you get divorced and already have a reverse mortgage

When a couple with a reverse mortgage together decides to get a divorce, they must submit the divorce decree to the loan servicer.  At that point, one of the spouses will be permitted to be removed from the home title, keeping the loan in the remaining spouse’s name.

Managing a Reverse Mortgage During a Divorce

For couples who are undergoing a divorce and already have a reverse mortgage, it’s important to understand the necessary steps to manage this financial arrangement.  Upon deciding to divorce, the couple must provide their divorce decree to their loan servicer.  This is a key step.

Following this, the process allows for one spouse to be officially removed from the home’s title.  Consequently, the reverse mortgage loan will then be solely in the name of the remaining spouse.  This procedure ensures that the reverse mortgage terms are appropriately adjusted to reflect the new ownership status, providing a clear path forward for both parties in managing their joint financial commitments post-divorce.

Options for Dividing Home Equity in Divorce: Selling, Refinancing or Reverse Mortgage

OptionDescriptionProsConsKey Considerations
Selling the PropertySelling the home and dividing the proceeds.Clear and immediate division of assets; liquidation of equity.Both parties must relocate; dependent on market conditions.Timing, market conditions, and potential capital gains taxes.
RefinancingObtaining a new mortgage to pay out the spouse’s share.Retain ownership of the homeQualification for a new mortgage required; potential closing costs and higher mortgage payments. Credit score, income stability, and ability to manage increased mortgage debt.
Reverse MortgageTaking out a reverse mortgage to pay the spouse’s share of asset. No monthly payments required; allows one spouse to remain in the home.Depending on the occupying spouse age, may not qualify for full 50% loan-to-value to split asset evenly.Age requirements (usually 62+); suitability for the remaining spouse's long-term financial plan.
This table can help someone in a divorce situation evaluate the best method for dividing home equity according to their specific circumstances. The content should be adjusted based on the particular details of the situation and legal advice.

Top FAQs


What happens to a reverse mortgage in a divorce?

If a married couple has a reverse mortgage and goes through a divorce, there can be many different outcomes depending on how the reverse mortgage was set up and the plans for the residence.  For example, suppose both spouses were borrowers on the loan.  One will stay in the home after the divorce, and the other will move out.  In that case, the loan is still in good standing because one of the original borrowers still lives in the home as their primary residence.  If only one of the spouses was a borrower on the reverse mortgage loan, and the spouse is moving out of the property after the divorce, the reverse mortgage must be paid off by refinance or selling the home.

Can a reverse mortgage be taken to fund/settle the divorce payout?

Yes.  The spouse who wishes to remain in the property can apply for a reverse mortgage and use the available proceeds to pay the other spouse to complete the divorce settlement.  A written agreement outlining the terms must be filed with the court to accomplish this.

How does my existing reverse mortgage affect my new spouse?

If a homeowner obtained a reverse mortgage before a new marriage, the new spouse was not factored into the terms of that loan.  Therefore, the spouse has no spousal protection or deferral period to remain in the home with the reverse mortgage in place if the borrowing spouse were to pass away first.  The only way to protect a new spouse is to refinance your reverse mortgage to a new one with the new spouse included in the terms.

Will a divorce cause my reverse mortgage loan to be called due and payable?

Not necessarily.  If you were a borrower on the reverse mortgage and lived in the property as your primary residence, your loan will not be called due and payable.  Suppose you were not a borrower on that loan, and you were the one who wished to stay in the home.  In that case, you must pay off the reverse mortgage loan, or it will be due and payable after the borrowing spouse no longer occupies the property as their primary residence.

If I divorce, can I get a new reverse mortgage of my own?

Yes.  To be eligible to get your reverse mortgage after the divorce, you will need to be able to supply your divorce decree finalized with the court.  The agreement will have to have specifically awarded the property to your ex-spouse and named them solely responsible for that reverse mortgage.  Without this documentation, you cannot get a new reverse mortgage.

If you are co-borrowers and separate, and one buys a new house, does the reverse mortgage become due if the other stays in the reverse house?

When co-borrowers part ways and one of them purchases a new home, the reverse mortgage on the original property remains unaffected as long as at least one of the initial borrowers continues to use the original house as their primary residence.  The loan’s status remains in good standing and does not become due and payable until the property is sold or no longer serves as the primary residence of any of the original borrowers.

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