Key facts
- Reverse mortgages are emerging as a financial tool for 'gray divorce' settlements.
- Gray divorces affect couples in their 50s or older, often post-retirement.
- Reverse mortgages can fund equity buyouts and eliminate monthly payments for eligible homeowners.
- The loans can provide a lump sum to satisfy spousal obligations in divorce settlements.
- Integrating mortgage planning earlier in divorce negotiations can improve financial outcomes.
Reverse mortgages are increasingly being utilized as a financial strategy in 'gray divorce' settlements, which involve couples divorcing later in life, often after retirement. These unique financial challenges arise when income is fixed and assets are limited, and older adults have less time to recover from the financial impact of splitting assets. According to research cited by The New York Times, rates of gray divorce doubled in the U.S. between 1990 and 2010.
Lisa Moriello, a Certified Divorce Lending Professional, highlights that older adults experience a greater financial and psychological setback from divorce, with retirement accounts, pensions, and home equity needing to support two households instead of one. Women often bear a larger burden due to lower lifetime earnings and smaller retirement savings. Unlike younger couples, older individuals have limited ability to replace lost income.
Housing equity is frequently the largest asset in these settlements. For homeowners aged 62 or older, a reverse mortgage can provide funds to buy out a spouse's equity while eliminating the need for monthly principal and interest payments. This is particularly beneficial for those who are 'house-rich and cash-flow-constrained' and find traditional financing options limited. The lump sum from a reverse mortgage can be used to meet mandatory obligations in divorce settlements. Furthermore, a Home Equity Conversion Mortgage (HECM) for Purchase can assist the departing spouse in purchasing their next home without depleting settlement funds or taking on unsustainable payments.
Moriello points out that divorce settlements often rely on assumptions about a spouse's ability to qualify for refinancing, leading to potential issues. She advocates for integrating mortgage planning earlier into divorce negotiations to proactively address financing obstacles and improve long-term financial outcomes for both parties.