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Reverse Mortgage Can Help a Retiree’s “Silver Divorce” — Tom Davison Shares His Thoughts

Introduction

Silver divorce, or ending the marriage during retirement years, was rare in times past, but this is no longer the case. And more is predicted with the advent of the baby boomers.  In a previous article, I outlined the potential problems that result with divorce at a later age as reported by financial Author Mary Beth Franklin:

  • Divorce among spouses age 50 and older is increasingly common and has negative implications for baby boomers’ retirement security
  • Even though the overall U.S. divorce rate has remained stable since 1990, gray divorce has doubled during that period
  • The share of baby boomers living in poverty is nearly five times higher among unmarried (19%) than married (4%)
  • Gray divorce appears to diminish wealth more than earlier divorce
  • In addition, gender matters and economic disparity between men and women widens with age. A whopping 27% of gray divorced women are poor compared to just 11% of gray divorced men. Women are impacted in a greater measure than men are.

The bad news is that divorce is always painful, but if there is a home involved, there may be some ways to create a real win/win, especially for women.  Tom Davison, my good friend and member of the Funding Longevity Task Force, explores two of these options.  He demonstrates his research in succinct examples and provides several resources for continued reading.

Silver Divorce Options

The Silver Divorce is a growing part of retirement for baby boomers. Financing retirement is challenging enough before splitting resources between two households. Many couples’ home is their largest asset, increasing the difficulty of an equitable division of assets, much less establishing a sound financial footing for their separate lives. Two ways of using a HECM reverse mortgage to help with these challenges are…

1. Spousal Buy-Out

One spouse buys out the other by securing a HECM and remains in the house without debt-payment obligations or portfolio invasion.  The departing spouse uses the buy-out money as a down payment for a new home and finances the rest with a HECM for Purchase.  Again, there are no debt obligations and no portfolio draws.

Silver Divorce Gray Divorce HECM for Purchase scenario

2. Sell the Marital House

The marital home is sold and each spouse takes half the equity.  By each utilizing a HECM for purchase, respectively, each spouse acquires housing equivalent in value to the original home.  Furthermore, no mortgage debt or portfolio invasion occurs.

 

{Related Reading} Gray Divorces are on the Rise, but Reverse Mortgages are Changing How Women Can Cope

 

Ask the Experts

Jamie Hopkins in his Forbes article ‘Silver’ Divorce Puts Strain on Retirement Income reports that “According to Barry H. Sacks, Ph.D., J.D., a member of The American College’s Longevity Funding Taskforce, an often overlooked and underutilized tool for dividing assets in silver divorces is the reverse mortgage. A reverse mortgage can be used to provide the liquidity needed to help divide the value of the home, paying out the spouse who wants the money while allowing the other spouse to remain in the home without making any mortgage payments. Monthly mortgage payments could be a huge strain on his or her retirement income each month.”

A new paper “Using Housing Wealth to Facilitate Asset Division in “Silver Divorce – Some Unconventional Uses of Reverse Mortgages” lays out a variety of ways a reverse mortgage can help a couple start their new financial lives.  Barry Sacks, Mary Jo Lafaye, and Stephen Sacks, the authors, offer examples and include ways of improving post-divorce cash flow by coordinating cash from a reverse mortgage with withdrawals from an IRA or 401(k). Their paper is available here: silver-divorce-paper.

Tom Davison is a financial services provider who serves on the Funding Longevity Task Force at The American College. You can read more from Tom at ToolsforRetirementPlanning.com

Don Graves, RICP®

Don Graves, RICP®

President and Chief Conversation Starter at HECM Advisors Group/Institute
Don Graves, RICP® is a Retirement Income Certified Professional and one of the Nation’s Leading Educators on the Emerging Role of Reverse Mortgages in Retirement Income Planning. He is president and founder of the HECM Institute for Housing Wealth Studies and an adjunct professor of Retirement Income at The American College of Financial Services. He has helped tens of thousands of Advisors as well as more than 3,000 personal clients since the year 2000
Don Graves, RICP®
Don Graves, RICP®

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