Divorce among seniors, often referred to as “gray divorce,” is on the rise. For couples over 55, dividing assets often involves unique challenges, especially when it comes to real estate. A reverse mortgage can provide a flexible solution, allowing one spouse to retain the marital home while ensuring the other receives their share of equity.

This post explores how reverse mortgages work in divorce and their potential benefits for seniors in Michigan.

What Is a Reverse Mortgage?

A reverse mortgage allows homeowners aged 62 or older to access a portion of the equity in their home, based on their age, without monthly mortgage payments. In fact, it is the opposite, the lender makes payments to the borrower either monthly, quarterly, or annually. The older they are, the more equity they can have access to. The loan is repaid when the borrower sells the home, moves out permanently for any reason, or passes away. Notice how the borrower never transfers title to the home as part of a reverse mortgage. They or their estate, upon their passing, will own the home and have an opportunity to pay off the reverse mortgage via a sale or a refinance into a traditional forward mortgage.

In a divorce, a reverse mortgage can:

• Help one spouse buy out the other’s equity.
• Provide supplemental income to improve financial stability.
• Allow a spouse to retain the marital home without traditional refinancing challenges like the ability to make monthly payments.

When Is a Reverse Mortgage a Good Option?

1. Retaining the Marital Home
   • A reverse mortgage enables one spouse to stay in the home without taking on a new monthly mortgage payment.
2. Buying a New Home
   • Divorcing seniors can use a reverse mortgage to purchase a new home, combining proceeds from the marital home sale with reverse mortgage funds.
3. Supplementing Income
   • For seniors on fixed incomes, reverse mortgage proceeds can provide financial stability during and after divorce.

Case Study: A Gray Divorce in Grand Rapids

Scenario:

A couple, husband (74) and wife (77) were divorcing in Grand Rapids. Their marital home was valued at $400,000, with $300,000 in equity. The wife wanted to remain in the home, but her fixed income made traditional refinancing difficult.

Challenges:

• The wife’s income was insufficient to qualify for a conventional refinance.
• The husband needed his $150,000 share of the equity to purchase a new home.

Solution:

As a Certified Divorce Lending Professional, I:

1. Explored Reverse Mortgage Options: Recommended a reverse mortgage that allowed the wife to access $200,000 of the home’s equity while maintaining ownership.
2. Structured the Settlement Agreement: Collaborated with the couple’s attorney to specify that $150,000 of the reverse mortgage proceeds would be paid to the husband at closing.
3. Provided Financial Guidance: Helped the wife understand how the reverse mortgage worked and its long-term implications.

Outcome:

The wife retained the marital home without monthly mortgage payments, while the husband received his equity share to purchase a condo. Both parties achieved financial stability and independence because all parties knew what was possible and there was a plan in place using divorce mortgage planning to make it all happen in the end.

Michigan-Specific Considerations for Seniors

• Appreciating Home Values: Michigan’s rising home values provide seniors with more equity to leverage in a reverse mortgage.
• Cost of Living: Seniors in Michigan often face higher medical and living expenses, making reverse mortgages a valuable tool for supplemental income.
• State Protections: Michigan laws protect homeowners from predatory lending, ensuring reverse mortgages are a safe option.

Call to Action

For Divorcing Seniors:

Are you exploring ways to retain your home or access equity during your divorce? A reverse mortgage might be the solution. Contact me for a free consultation to understand your options and secure your financial future.

For Family Law Professionals:

Partner with a Certified Divorce Lending Professional to help your senior clients navigate reverse mortgages and real estate decisions during divorce. Together, we can ensure equitable and informed outcomes.