The Pew Research Center made a splash back in March with data that showed the fastest divorce-rate gains over the last 25 years belonged to Americans 50 years or older: 10 out of every 1,000 married people in that age group divorced in 2015, as compared to just 5 out of 1,000 in 1990.
Divorces remain rare among that cohort, with younger people still accounting for the most marriage splits; for comparison, 24 out of every 1,000 married Americans between the ages of 25 to 39 called it quits in 2015. But the doubling of divorces among older people — a figure that goes up to nearly triple for people older than 65 — was enough to inspire renewed discussions of how the Home Equity Conversion Mortgage can help with post-divorce financial woes.
On a recent webinar hosted by the National Reverse Mortgage Lenders Association, certified divorce financial advisor Diane Pappas laid out the potential reasons a recently-divorced spouse might use a HECM. More often than not, Pappas said, a late-in-life split disproportionately affects the wife, as women from older generations were less likely to work and involve themselves in household finances.
“She may never have worked,” Pappas said. “She may not even know what they have in terms of retirement money, or how much her husband earns. I run into this all the time.”
And while divorces at any age create financial issues, Pappas — the principal at Solutions for Divorce, a consulting firm in Gloucester, Mass. — said older folks face unique challenges stemming from their shorter timelines.
“The fact that retirement is right around the corner makes it hard to make those kinds of adjustments,” Pappas said.
That’s especially true in the case of home ownership. In a typical divorce, Pappas said, spouses generally have three options for dealing with the former marital house: sell it, own it jointly, or buy out the other spouse. The second option, though, generally only works for younger couples with school-aged children; older people with grown kids have no reason to own a house together if they don’t even want to live together anymore.
A reverse mortgage, then, can help one spouse buy the other out — and, in the case of the HECM for Purchase program, allow the departing spouse to buy a new property.
“I can see where a reverse mortgage is a way to think outside the box, and maybe provide some options where they did not have options before,” Pappas said.
All divorce proceedings eventually come down to splitting financial assets between the two parties, and it’s tempting to think of the house as merely one more object to be divvied up. But Jamie Hopkins, associate professor at the American College of Financial Services, pointed to U.S. Census data from 2010 that showed the median 65-year-old couple held 68% of their wealth in their homes, compared to just 32% in “non-equity assets” such as cash and investments.
“So as we’re splitting up assets in a divorce, as we’re moving through retirement, we have to be aware of how important the home is,” Hopkins said.
A lump-sum HECM could be useful to split the home-equity wealth equally between the parties, Hopkins said, while a reverse mortgage line of credit could be beneficial for the spouse who remains in the house. The answer all depends on the people’s individual goals, and defining those desires is an important part of the divorce process.
Hopkins, who has advocated for the HECM as a retirement-planning tool, said it’s important to involve reverse mortgage specialists in divorce proceedings given the product’s less-than-stellar reputation, and the general lack of knowledge about reverse mortgages among lawyers, accountants, mediators, and other players in the divorce process.
“Anytime that we’re dealing with a product or strategy that has a negative starting point, we have to own up to that,” Hopkins said.
Finally, during a routine breakdown of the HECM program, Dan Hultquist — director of learning and development at the ReverseVision software firm — brought up an unusual strategy regarding non-borrowing spouses. Since older borrowers generally can tap into a higher percentage of home equity, an older former spouse may very well wait until the younger partner leaves the home before taking out a reverse mortgage; once the younger person leaves, his or her age is no longer a part of the HECM calculus, thus netting the remaining partner more money.
“There may be a time when it makes sense to go ahead and separate now, because they’re going to qualify for more with one borrower,” Hultquist said.
No matter what the goals, Pappas emphasized the importance of teamwork among trusted advisors — lawyers, accountants, mediators, and HECM specialists — when navigating the tricky waters of senior divorce.
“The professionals really need to collaborate and work together and make sure that every little issue is addressed,” Pappas said.
Written by Alex Spanko