How Reverse Mortgages Can Streamline a Gray Divorce

Gray divorce, a term used to describe a divorce that takes place for couples over the age of 50, continues to rise in the United States. According to 2017 data compiled by the Pew Research Center, the rates of gray divorce have doubled since 1990, and the reverse mortgage industry has taken notice by viewing that growing prevalence as an avenue of potential business.

Still, gray divorce’s interaction with reverse mortgages and retirement has its own sets of consequences. For some, a divorce can result in a reverse mortgage to find some kind of supplemental financing in retirement, shoring up the loss of one person’s household income.

For others, a reverse mortgage has the potential to provide payment to a displaced former spouse, but no matter who it affects, divorce is a universally disruptive occurrence for any couple that experiences it.

Advertisement

Effects of gray divorce on housing, referral partnerships

Divorce understandably complicates the housing arrangement for a couple that chooses to split up, since married couples typically occupy the same home. In most cases, the house itself is used as a way to pay one of the spouses involved in the separation when the assets of a former couple are divided in a divorce, according to Jamie Hopkins, retirement consultant at Carson Group in a piece at Investment News.

“In many cases, one spouse stays in the home and essentially pays out the other spouse for their half of the home,” Hopkins writes. “This could require the spouse keeping the home to take on a new mortgage entering retirement, creating a cash-flow nightmare.”

This is where a reverse mortgage could potentially act as a solution in a divorce proceeding, Hopkins says.

“Another option is to sell the home and split the proceeds. […] A reverse mortgage can be an effective way to cash out roughly half of the home’s value to pay out one spouse,” he says. “And it allows the spouse who plans to age in the home during retirement to keep the house and not have a monthly mortgage payment.”

The landscape for divorced retirees is not all bad, Hopkins says, though the upheaval that can often come from them makes it necessary for the affected people to review a reverse mortgage as a potential tool to assist in organizing the fragmenting finances.

“Reverse mortgages, like refinancing, selling the home, and downsizing are all strategies that should be reviewed during a divorce as a possible way to effectively split up assets,” Hopkins tells RMD in an email.

However, a reverse mortgage is a tool that often goes unrecommended by attorneys involved with the divorcing parties, who may be concerned that recommending one strays too far outside their realm of understanding.

“Many attorneys won’t go down this route,” Hopkins tells RMD. “They won’t feel really comfortable without outside the box financing options, [meaning those] outside traditional forward mortgage options.”

Still, Hopkins thinks it is more likely that attorneys are more open than financial advisors are to reverse mortgages, which can make building those kinds of connections a smart move.

Reverse mortgage business opportunities

Some reverse mortgage originators see the increasing prevalence of gray divorce as generally promising for the reverse mortgage industry, particularly for seniors who need to find a way to access more cash for an abundance of necessary financial situations that could arise out of a divorce.

“A gray divorce is a great reason to do a reverse mortgage,” says Michael Zwerling, sales manager at New American Funding in Tustin, Calif. “I’ve helped quite a few clients over the years that got a divorce in their retirement years and, without their spouse’s income, were struggling to be able to manage their finances.”

This can naturally lead to a conversation between originator and client about how costs of living are on the rise across the country, and the necessity this often creates for additional income.

“[Seniors understand the] need to take the initiative to ensure that they can survive through their golden years,” Zwerling says. “Because, let’s face it, you only get one shot at this life so you might as well live it the way you want to.”

The consultative key

After facing the general upheaval that can often accompany a divorce, a reverse mortgage can be strategically employed to sort out the finances of one of the affected parties, according to Christina Harmes, co-manager of the C2 Reverse Division of C2 Financial Corp in San Diego, Calif.

“A reverse mortgage can really be a great tool during a divorce to help achieve both spouses’ goals,” Harmes says in an email to RMD. “My approach with all clients is to listen first for understanding, and I think that’s even more important in a divorce situation.”

When confronted with a divorce scenario, people are already stressed and confused in their efforts to restructure their lives, and often need an ear to listen and assist them in clarifying his or her financial goals, Harmes says. The originator can also be a difference-maker concerning what form the divorce can take.

“I have helped clients structure their reverse mortgage as part of the divorce settlement so one can stay in the home and the other can get off of the existing mortgage and move on with their share of equity,” Harmes says. “Many times, it’s one spouse that is looking into a reverse so they can stay in the house and give their departing spouse their share of the equity, and they already have a figure they need to get as part of the settlement.”

Divorce can also complicate the counseling process for individuals preparing to take a reverse mortgage, according to Jennifer Cosentini, housing director at Cambridge Credit Counseling Corp in Agawam, Mass.

“The biggest problem we have regarding counseling is trying to get the two spouses together for the appointment if the divorce isn’t final,” Cosentini tells RMD in an email. “A lot of clients will call to schedule an appointment and tell us that they’re going through a divorce, and their spouse will not participate in counseling. We have to explain that the spouse has to participate or they cannot move forward, which usually extends the normal time frame in getting their counseling scheduled and completed.”

In the end, the intersection between gray divorce and a reverse mortgage can lead to an orderly, logical separation when compared with younger forward clients, says Harmes.

“This really helps in the reverse mortgage process when the departing spouse’s cooperation is needed to complete the transaction,” she says.

Companies featured in this article:

, , ,

Join the Conversation (4)

see all

This is a professional community. Please use discretion when posting a comment.

  • I have spoken with attorneys about this. One thing to consider is that the partner leaving the home does not really receive the full amount of the equity in the home with a reverse as compared to selling the home.

    • Stephen,

      Why does the senior need more than 50% of the equity if the only asset needing funding was the house to split assets according to the property settlement.

      You must not live in a community property state or the spouse who is staying in the home has been shown not to have contributed at least 50% of the capital to acquire and finance the home which in California is hard to do if the couple has been married longer than they have owned the home; however, there are exceptions. Say one spouse inherited a significant amount of assets that were at distribution (and remained) the separate property of that spouse and such assets were used to make a disproportionate part of the acquisition cost and/or mortgage payments.

      Logically, more information is needed to understand your point.

  • Over 13 years ago, a well to do couple called asking about using a reverse mortgage to fund their property settlement. I had to carefully consider how to look at this issue. Fortunately, it was an hour drive to the couple’s home, giving me time to think.

    If I reviewed their docs and did any computational work, that would mean the couple had every right to rely on the fact that I was a CPA. So I entered into the home somewhat concerned. Within minutes, my concerns evaporated. The wife took control of the conversation explaining she had fully reviewed all of the issues and she and her husband agreed that $180,000 would resolve their situation in full. She was keeping the home. At closing the husband was paid in full and title transferred to the former wife encumbered by a HECM.

    This is not a new strategy but it is certainly underutilized. Further, it seems more and more there are strong implications being given that the HECM originator should act as the suitability and overall transaction adviser. We are reverse mortgage originators, not insurance, not risk management advisers, not cash flow specialists. If we don’t stay in our lane, in most communities, the originator will eventually pay a price.

string(96) "https://reversemortgagedaily.com/2019/08/07/how-reverse-mortgages-can-streamline-a-gray-divorce/"

Share your opinion