Grey divorces are increasingly common, but rising numbers don’t make them any less complicated, especially when it comes to splitting assets after years of planning for life as a couple. Reverse mortgages in place before the divorce may be impacted in multiple ways. Also, new reverse mortgages taken out as part of or after a settlement may also offer an attractive option for a spouse who wishes to stay in the home. Either way, there are several factors to consider when thinking of a reverse mortgage after a divorce.
The following frequently asked questions look at reverse mortgages after a divorce both from the perspective of an existing reverse mortgage and the possibility of taking a new reverse mortgage as a part of the divorce process.
Does Divorce Make a Reverse Mortgage Come Due?
Whether or not a divorce causes a reverse mortgage to come due depends on who is on the reverse mortgage and what one or both borrowers decide.
If both spouses are on the reverse mortgage loan, whether the loan becomes due depends on loan guidelines. If the loan is in good standing and one spouse wants to stay in the home, and the other spouse moves out, the divorce will not trigger the mortgage coming due. If one of the borrowers remains in the home, the reverse mortgage terms will remain unaffected.
In cases where only one spouse is the borrower, and they decide to move out, the reverse mortgage will come due. The borrowing spouse can sell the home or refinance to repay the reverse mortgage.
Options for Reverse Mortgages in Place Before Divorce
In cases where a couple jointly entered the reverse mortgage during the marriage, then at the time of the divorce, they have the following options:
- Sell the home. If neither spouse wants to keep the house, the couple can sell it, pay off the reverse mortgage, and split any remaining proceeds.
- One spouse keeps the home. If the divorce settlement allows one borrowing spouse to stay in the home, the existing reverse mortgage does not need to be paid off. Depending on the circumstances of the divorce, however, it may be preferable to refinance and for the spouse keeping the home to take out a new reverse mortgage in their name alone.
- Refinance the reverse mortgage. If there is enough equity in the home, one spouse may refinance via a new reverse mortgage and pay out the other spouse.
What if a Borrower With a Reverse Mortgage Gets Remarried?
If a borrower took a reverse mortgage before remarrying, the new spouse won’t be automatically added to the loan. If you’d like your spouse added to your reverse mortgage (provided they meet the eligibility requirements), you may be able to refinance and add your spouse to the new reverse mortgage.
Can a Reverse Mortgage Fund a Divorce Settlement?
Reverse mortgages can be useful tools in divorce settlements. Say one spouse wants to stay in the marital home but can’t afford to buy the second spouse out. A new reverse mortgage could fund a divorce settlement for the spouse who’d like to stay in the home.
The spouse who’d like to stay in the home must be able to prove they can maintain the property and pay any requisite fees, insurance and taxes. This spouse may use the proceeds to pay the other spouse as a part of the divorce settlement.
Taking a Reverse Mortgage as a Part of Divorce Proceedings
Getting divorced later in life naturally brings fears of financial insecurity and housing instability. For the senior spouse who would still like to stay in the home, a reverse mortgage may offer a way to eliminate monthly payments and help supplement income. It is also a viable strategy to limit housing expenses in later years and provide financial peace of mind post-divorce.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.