Ideas For Handling A Reverse Mortgage In A Divorce
Reverse mortgages have proven to be lifesavers for older people looking to supplement retirement incomes or obtain money to pay for medical expenses. With the number of late-life divorces doubling since 1990, however, chances are high that many older couples will have to figure out how best to divvy up the proceeds and debt related to reverse mortgages so it's fair to both parties. Here are a few ways you can tackle this issue during your separation.
How Reverse Mortgages Work
It's important to understand that reverse mortgages are, first and foremost, debts. You are taking out a mortgage based on the equity in your home. However, instead of you making monthly payments to pay back the debt, the finance company parcels the loan proceeds to you in monthly installments. Some loans will even give borrowers a lump sum that they can manage however they want.
The other important difference between a traditional and reverse mortgage is the loan doesn't come due until the primary or last borrower dies or moves out of the home for more than 12 months. At that time, the remaining spouse or heirs will have to pay the loan in full to keep the home or turn the house over to the mortgage company.
A reverse mortgage can quickly become problematic in a divorce because, unless both spouse's names are on the loan, the note will come due if the primary borrower moves out. Since an uncontested divorce can take up to six months to finalize and a contested divorce can take even longer, it's a good idea to develop a plan for handling the reverse mortgage debt as soon as you begin contemplating separation.
Resolving Reverse Mortgage Issues During Divorce
Possibly the easiest thing to do is to sell the home and pay off the reverse mortgage. This way, there is no debt to worry about and any remaining equity can be split between you and your ex. As a late-life divorcee, though, you may have more years behind you than ahead of you. Starting over in a brand-new place may not be desirable, especially if you have health issues that negatively impact your mobility or agency. Additionally, the monthly payments will stop and you'll need to find another way to supplement your income.
The second option is to divide up the payments. If you're the primary borrower and you remain in the home, then the loan will continue as normal regardless of your marriage status. Again, you'll have to find a way to make up for the loss of income, but it won't be as severe as if you were to simply sell the house. However, even if your name is not on the loan, you may still be responsible for some of the debt since it can be considered part of the marital estate. So if your ex moves out of the home, you may be required to chip in to pay off the balance due, and the payments will stop if he or she dies.
A third option is to buy your ex's stake in the home or sell your interest to him or her. If there is any equity in the home after the reverse mortgage is accounted for, then one party can sell his or her share of the home to the other party. This can provide one spouse with enough cash to start over somewhere els, while the other spouse continues to enjoy the benefit of getting the monthly payments from the reverse mortgage. Of course, though, you will lose any other benefits associated with homeownership, such as tax write offs and potential rental income.
For more ideas on settling a reverse mortgage issue in your divorce or assistance with other matters related to your separation, contact a divorce attorney in your area, like Debbie L. Fong-Uribe PS.
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