While divorce rates across the nation are in decline, the divorce rate for seniors is skyrocketing. In fact, from 1990 to 2009, divorce rates for couples over 50 have doubled. Researchers have dubbed this phenomenon as “Gray Divorce.” Though there are still the common reasons for divorce in this age group such as infidelity or drifting apart, researchers are also finding that seniors are divorcing due to less social stigma attached to divorce, empty nest syndrome and longevity. In regards to longevity, people are considering how they want to spend the next 20 to 30 years of their life. If they are not happy in their current relationship, they may not want to spend another 20 to 30 years with that person.
Divorcing as a senior brings with it three major financial issues that really need to be addressed. Those three things are alimony, division of retirement assets and the family home. All three of those things can impact the rest of your retirement and how enjoyable it may or may not be.
Alimony – In most cases of senior divorce, alimony is awarded to a spouse. The amount of alimony awarded will vary greatly due to a number of factors. What’s really interesting and also a little scary, is alimony is oftentimes awarded for life.
Division Of Assets – In most cases, assets are going to be divided equally. In article from US News “What looked like a lot of money to live on in your senior years doesn’t look like much when cut in half,” Bob Boyd, a partner with the Atlanta law firm Boyd Collar Nolen & Tuggle. You have to consider what the ramifications of the divorce are going to be financially. Will you have enough to last you throughout retirement? What will the impact of monthly income be during retirement?
Family Home – Of the three major financial issues faced during a divorce, the family home is the most emotional one. Many women really do not like the idea of having to sell or give up the family home. They have spent a great deal of time turning the house into a home. What tends to happen, since assets are usually divided equally, one of the spouses gives up other assets such as stocks, bonds etc., in order to keep the home.
As scary as those things sound, there is a solution that senior homeowners in Oregon should consider. It can soften the blow of these financial issues for both spouses. That solution is a reverse mortgage. Below are three different scenarios where a reverse mortgage might make sense for one or both of the spouses getting a divorce.
Giving Your Ex-Spouse Their Portion Of Equity – This scenario really works best when the home is owned free and clear or there is only a small balance left on the mortgage. With a reverse mortgage, the biggest determining factor on how much you can borrow is based on your age. If you are 62, you can borrow roughly 50% of the home’s value. If you are 80, you can borrow roughly 66% of the home’s value. Based on those numbers, you can see why this option works best if the home is owned free and clear or there is a small balance. You will be able to give your ex-spouse their portion of the equity or most of it.
There are four reasons why you may want to consider utilizing a reverse mortgage in this situation. The first reason would be that you would be able to retain the home. The second reason would be you are able to retain more of the “liquid” assets such as stocks, bonds and savings. You may not be able to qualify for a traditional mortgage or a home equity line of credit with your current income. And finally, there would be no monthly mortgage payments to worry about.
Making The Home More Affordable – If you are awarded the home in the divorce and want to keep it, affordability may be an issue. You may not have enough income to cover the mortgage payment plus your other debts and living expenses. Refinancing the home utilizing a reverse mortgage, you could pay off the balance of the mortgage, getting rid of the monthly mortgage payments. At that point, you would only be responsible for paying taxes, insurance, HOA fees if applicable and upkeep of the home.
There are three reasons to consider a reverse mortgage when there is a current balance on the mortgage, besides making the home affordable. First, if you sold the home, there may not be enough equity to purchase another home. Renting a home or apartment will probably be more expensive than paying taxes, insurance and other costs associated with keeping the home. Depending on the value and mortgage balance, you may be able to gain access to additional equity which you could use to supplement your income or retirement accounts.
Selling The Home And Buying Another – Using a reverse mortgage to purchase a home could mean a fresh start for both people in the recently ended relationship. This scenario is wholly dependent on the value of the home and the amount of liens against the property. With a reverse mortgage purchase, you will need 50% or less down to purchase a home, depending on age.
To simplify this scenario we are going to assume the home is worth $300,000 and is owned free and clear, no liens against the property. We are also assuming the home sells for what it is worth. Based on those numbers, each spouse could expect approximately $140,000 in proceeds from the sale of the home. I say approximately, because it will depend on what the real estate agent is charging you to sell the home, closing costs from the title and escrow company and if there were any concessions such as paying for a portion or all of the buyers closing costs.
Assuming each spouse walked away from the sale with $140,000. They could purchase a $280,000 house or more depending on their age. This could put each spouse into a very comparable home to the one that was just sold and there are no monthly mortgage payments. If you are the spouse that is required to pay alimony, this makes alimony payments much more affordable.
As you have just read, a reverse mortgage can take the financial sting out of the divorce. It can provide a more stable and less financially troubling retirement. It is something that virtually every divorcing senior couple in Oregon, that owns a home, should really consider.
Do you have questions about reverse mortgages? Want to know if you would qualify? Wondering what the numbers look like? Give me a call today at 541-773-3131. There is no cost or obligation to speak with me or to receive a proposal.
Still unsure about a reverse mortgage and how they work?
Or give me a call at 541-773-3131.
Matt Allen MLO 254296
Sr. Reverse Mortgage Banker
Pacific Residential Mortgage LLC NMLS-1477/WA CL-1477