Reverse Loans and Divorcing
In my previous post I mentioned that since the 1990’s, “Gray” divorce ( As senior divorce is often referred to) has increased. As a matter of fact it has tripled and more seniors are splitting up than in any previous time.
More often than not, the “wife” will want to continue to live in the home but is unable to qualify for a traditional loan due to lack of income and cash reserves.
So what happens if one of them wants to keep the home and continue to live in it?
More than likely they won’t have enough income to qualify for a traditional loan and even if they are going to receive spousal support, a lender will not use it for qualifying purposes because there will be no history of it’s receipt to the spouse who has been awarded support.
And what would be her option?
Depending on her age, the value of the subject property and if there are any mortgages on it, she may be able to qualify for a reverse mortgage, pay off the spouse and continue to live in her home.
Her only responsibilities would be to continue to pay property taxes, home insurance and any HOA fees and keep the home in good repair.
Reverse loans are a financial tool. A tool to leverage the longevity of a retirement portfolio, purchase a home, provide additional income for on going expenses and other aging concerns.
And it’s also an excellent tool that can help the pain of divorce be just a little bit less and allow one of the divorcing couples to remain living in their home and not be displaced.
My description is quite simplistic in this post and the borrower does need to qualify on their residual income, but overall using a Reverse mortgage as part an option to retain the property in a divorce is a very good suggestion and should be considered in the settlement process.
Seniors Are Divorcing
Divorce is always an emotional and difficult experience regardless of the reason or the age of the two individuals who are experiencing this wrenching event in their lives.
Overall the national average of divorcing couples has declined over the years but what is odd, is that it has tripled for those couples over the age of 65 since the 1990’s.
The reasons for senior or “gray’ divorce vary but some of the more common ones is that after raising their children for many years, they began to see themselves as simply parents and no longer friends or lovers.
Then when the adult children leave the home and start their own lives, an older couple may discover that they no longer have any shared interests as they have grown apart over this period of time.
The financial implications of a “gray’ divorce can be quite complicated in that any assets and or retirement funds could end up being liquidated with disastrous consequences for the couple and their future financial stability and security.
I am not a financial advisor and certainly not a Divorce attorney and not qualified to provide any guidance in this matter and it’s best for couples to always seek professional advice when it comes to something as serious as a divorce and splitting up their assets.
However if there is equity in the home, it may be adequate enough to utilize a Reverse mortgage as a tool to either give half of it to one of the divorcing party’s and or buy them out in exchange for the other party receiving any investments they may have accrued together.
But a property settlement would have to be created by their mutual Divorce attorneys to make a final determination as to how all assets are to be divided.
So how would that work?
In my previous post, I mentioned how much more frequent it is for people over age 65 to divorce. In spite of the national average being down, older Americans are divorcing at a much higher rate than they did in the past.
It’s difficult and painful enough to go through any divorce, regardless of your age, but I can’t imagine how much more complicated and painful it can be when you have been married for many years. Depending on the property agreement between the parties and if anyone is going to remain in the home, funds from a Reverse loan can be used to buy out the other party.
Here is the remainder of the article by Anita Gumm, Esq. about “Premarital Bliss”. See my previous post for the first part of it.
“Also, a party may want to preserve his or her estate for his or her heirs, free of the other party’s inheritance claims. Premarital agreements may validly provide that the earning and accumulations of each party’s separate property, free of any claims, community property or otherwise, of the other party.
Agreements fixing or saving child support are invalid. However, spousal support may be waived or fixed in an agreement so long as the agreement is ‘fair and equitable’. The parties may determine ownership rights and disposition of death benefits from a life insurance policy in an agreement along with their property rights.
Each party must fully disclose all of their assets and debts in the agreement otherwise a court could find the premarital agreement unenforceable.”
Although the national average for divorce has come down over the years, it has actually increased in seniors. Sometimes it’s referred to as Gray Divorce in the obvious reference to “older” adults.
It seems unimaginable that after being married for many, may years, sometimes for 50 years or more, that anyone would get a divorce at that time in their life. But it is occurring more often than you would think it would.
When it comes to the property settlement and if it’s agreed that one of the individuals will buy out the other and remain in the home, they can use a Reverse loan to accomplish the refinance and not have to worry about qualifying for a traditional loan using their income and credit or be burdened with a mortgage payment when they are most likely on a fixed income.
I recently met with Anita Gumm, Esq. a Divorce attorney for many years and we discussed this unusual situation and “late in life” divorces. She provided me with an article that she wrote which I share in this post.
Anita Gumm, Esq.
” A ‘premarital’ ( or ‘antenupial’) agreement is a contract executed between prospective spouses in contemplation of marriage, fixing marital property rights and financial responsibilities upon consummation of the marriage.
The motivation in executing a premarital agreement is typically intended to foster or perpetuate conditions which will help preserve a forthcoming marriage. Premarital agreements are favored by the courts provided they are freely entered into by the parties with no deception, duress or undue influence.
The parties intent in executing a premarital agreement is to avoid or alter the applicability of community property law to assets already owned by each party and to property and income to be acquired during the marriage.”
I will publish the remainder of her article in a following post.