You may have heard about how a reverse mortgage can help improve your financial situation by allowing you to withdraw the equity in your home over time.

For those people meeting the 62-year-old age requirement who have substantial home equity, this can be a means to expand monthly cash flow or eliminate mortgage payments by paying off an existing mortgage through a federally insured loan.

But there’s another, less commonly known benefit of reverse mortgages: their utility in divorce situations.  A reverse mortgage can offer a financial lifeline during the often complex process of dividing assets.

It can ease the burden on both parties, providing a means to equitably split home equity and facilitate independent living arrangements.  This financial tool can be a valuable asset in ensuring both parties navigate the financial aspects of a divorce with greater ease and security.

ARLO explains reverse mortgages and divorce

Reverse mortgages and living separately.

Many couples who separate later in life find themselves unable to support the costs of a home once supported by two partners now that they are independently responsible.

Here is where a reverse mortgage can come into play…

The loan allows you to choose how you withdraw the equity in the home, whether as a lump sum, a series of ongoing payments, or a combination of one spouse prefers to remain in the house but cannot meet the monthly mortgage payments, a reverse mortgage can be used to pay off the mortgage, with any remaining proceeds going to the moving spouse.

For example:

Say you have a $300,000 home with an $80,000 mortgage balance at age 72.  You can borrow a little more than $200,000, with $80,000 going to pay off the existing mortgage and the remaining $120,000 to be used however you choose.  You can even wire the funds to the moving spouse at closing.  You must remove the moving spouse from the home title, which can take place during the loan.

As with any reverse mortgage, the loan becomes due when the borrower moves from the home or passes away.  They must continue to pay property taxes and homeowners insurance over the life of the loan.  This will allow one spouse to keep the home payment free while the other can save the remaining cash.

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 reverse mortgage 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

Q.

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.
Q.

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.
Q.

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.
Q.

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.
Q.

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.
Q.

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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