Practical Tips concerning using a Reverse Mortgage to buy out a spouses equity in a divorce

Let’s face it, divorce can happen to anyone and at any age.  For seniors who had a financial retirement plan that is based upon supporting only one home, it’s easy to see how divorce is a financial disaster.  For some situations a reverse mortgage may work when one of the divorcing parties wants to keep the home as their primary residence.  The benefit of using a reverse mortgage to ‘buy out’ the other spouse is that there is no monthly mortgage payment.  Instead, interest on the lump sum is taken out against the existing equity in the  home pays the departing spouse their share of the home’s value.  The borrower retains the home in his/her own name and has a mortgage that will increase in size as  interest adds to the loan.  The loan doesn’t have to be repaid until an event happens such as the borrower dies or the home is no longer the borrowers primary residence.

So if the borrower is 62 years or older, and there is  little or no existing mortgage on the property, the next step is to contact a reverse mortgage loan officer.  No, not to make application, instead just to do some homework and get some numbers that are pertinent to the borrower’s situation.  Then the borrower should take those numbers to a reverse mortgage counselor.  That person will help the homeowner understand the implications and help them consider alternatives to a reverse mortgage.  By the way, at such an emotional time it’s very wise for the borrower to have a trusted family member or financial advisor to come along to both these appointments.  This is no time to prove to the world their resilience and independence.

It’s a lot easier to do a reverse mortgage before starting divorce proceedings.  Even so, my advice is to get an attorney, and possibly a tax advisor,  involved to negotiate in pricipal how split all the assets, including the homes equity.  If divorce proceedings have started the borrower can not close on the reverse mortgage (i.e. get the money) until there is a completed and signed settlement agreement.  Things get complicated if the departing spouse is not yet age 62, only one spouse is now on the deed, or the spouse retaining the home is not currently occupying the property.  

Getting a divorce late in life doesn’t have to mean losing one’s home.  For some situations a reverse mortgage is a sensible solution.