There is no arguing that “gray divorce” is on the rise. Rates of divorce in individuals over 50 have grown at a faster pace than any other demographic in recent years. While all divorces are complicated, a divorce involving two individuals at a later life stage can often involve additional moving pieces.
Many couples going through gray divorce struggle with the division of assets, the uncertainty of retirement cash flow, and adapting to a new normal after the divorce. An underutilized tool that has the potential to address all of these concerns is a reverse mortgage. Now I know the first thing that comes to mind when many people hear the term “reverse mortgage” are Tom Selleck commercials on daytime television. However, we have worked with certain clients where a reverse mortgage makes a lot of sense.
The first part of the process is understanding what a reverse mortgage is. By definition, a reverse mortgage is” a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income”. Some potential benefits of a reverse mortgage include:
- Funding a Settlement Agreement – The marital home is often one of the largest assets involved in the settlement process. The home is either sold, and the proceeds are divided among the two parties. Or, one spouse stays in the home and essentially pays off the other spouse for half of the home. A reverse mortgage can allow for a third option, where one individual receives their half of the home’s value, while the other can remain in the home.
- Providing an Appropriate Housing Solution Post-Divorce – One of the other potential benefits of a reverse mortgage is that it can alleviate the post-divorce stress of finding a new home. Often, at least one spouse would prefer to remain in the existing home, and this would typically involve paying out the other spouse and taking on a new mortgage. This new payment, along with a change in income due to impending retirement, can create a cash flow nightmare. A reverse mortgage may allow for one individual to remain in the home, reducing anxiety and unwanted transition.
- Alleviating Cash Flow Concerns for the Future – In many gray divorce cases, the parties are already entering into an unpredictable cash flow situation. Couple that with a new lower “household” income and the divorce may end up being the tip of the iceberg when it comes to financial complications. A reverse mortgage eliminates a monthly expense (mortgage payment) and adds additional cash flow, which can be a lifesaver for individuals looking to manage their monthly finances in their “new normal”.
Reverse mortgages are certainly not the answer in every gray divorce. There are multiple eligibility requirements to qualify for a reverse mortgage, and there are several different ways to receive the proceeds. Reverse mortgages should be considering alongside refinancing, selling the home, and downsizing, as potential settlement solutions.
It is very important that divorce attorneys and their clients explore all settlement options during the divorce proceedings, even seemingly non-traditional ones. We enjoy partnering with attorneys and their clients to come up with unique solutions to ensure that a fair and equitable settlement is reached.
If you have any questions about this topic or any other topics throughout the divorce process, please feel free to contact me at jvanfleteren@straussfinancial.com.
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