Creative Alternatives to the Courtroom

Reverse Mortgages: A Viable Option in Silver Divorces

Silver divorce, or grey divorce, is increasing at the same time when divorce among younger people is decreasing. This trend has necessitated innovative solutions to the problem of funding retirement, and one of the most useful—and misunderstood—tools in this regard has been reverse mortgages.

A reverse mortgage is an arrangement in which a homeowner or homeowners aged 62 or older receives a loan that is not payable until they sell the home. A reverse mortgage shields the homeowner(s) from seller’s fees, but leaves payment of property taxes and maintenance of the home with the homeowner(s).

There are several misconceptions about reverse mortgages, such as:

  • Good credit is required to secure the reverse mortgage. In reality, reverse mortgage lenders only check for delinquent taxes.

  • The original mortgage must be paid in full to qualify. In fact, reverse mortgages can be used to pay down the principal of the original mortgage.

  • The only people who get reverse mortgages are in dire financial straits. Reverse mortgages can be used as part of an overall wealth management strategy, even for people with a high net worth.    

In their paper, Using Housing Wealth to Facilitate Asset Division in “Silver Divorce”, Barry H. Sacks, Mary Jo Lafaye, and Stephen R. Sacks make the case that using a reverse mortgage when splitting assets during a silver divorce saves couples money, in part because they are not subject to the capital gains tax.

They go on to list several scenarios both with and without the use of a second mortgage to show the clear advantages that reverse mortgages have over asset division by selling a house the traditional way.

The paper is a scholarly exploration of the issue, so if you do not understand it fully, that is natural. I am hear to field your questions about reverse mortgages or any other retirement-related anxieties you may have. Contact me here.