Keeping the House in a Divorce with a Reverse Mortgage
Reverse mortgages once had a shaky reputation, but today’s rules and safeguards make them worth a fresh look. In the right circumstances, they can help one spouse keep the marital home after a split.
Why this comes up so often
The home is frequently a couple’s largest asset—especially in a “gray divorce,” where years of ownership mean more equity and, often, a nearly paid-off loan. High equity can actually complicate a buyout because:
they may no longer be working and therefore they have no income to qualify for refinancing, and
there may not be sufficient other assets with value large enough value to offset half of the equity in the home.
On top of that, once expenses are divided between two households, one spouse may struggle to cover a monthly mortgage on their own.
Who can use a reverse mortgage—and how the cash can flow
Reverse mortgages tied to divorce are available to homeowners age 62 or older. They can be structured for lump-sum, periodic, or blended payouts to fit the settlement:
Example with an existing mortgage: At closing, the reverse mortgage can pay off the old loan and release additional funds to the departing spouse.
Example with no mortgage: Proceeds can be used to satisfy the departing spouse’s equity.
In either case, the departing spouse must be removed from title.
Ongoing responsibilities and when the loan comes due
Like any reverse mortgage, repayment is triggered by the borrower’s relocation, passing, or the sale of the property. Borrowers must keep property taxes and homeowners insurance current and maintain the home throughout the loan.
Required counseling adds protection
To qualify for an HECM (Home Equity Conversion Mortgage)—the federal reverse mortgage—homeowners must first complete counseling with a HUD-approved agency. These counselors provide unbiased education on alternatives to an HECM, expected costs, and available payment plans, and can help you evaluate whether a reverse mortgage supports a fair asset division in your divorce.
A practical tool—when it fits the plan
In the right scenario, a reverse mortgage can solve two problems at once: allow one spouse to stay in the home and provide cash to the other spouse—without requiring traditional income-based refinancing.
If you’re already in the middle of a divorce—or already have a reverse mortgage—FMD Wealth Advisors can coordinate with your attorney and a mortgage specialist to review options, model cash flow, and determine whether this approach aligns with your broader financial plan. Book your Free - Consultation here.
Disclosures: FMD Wealth Advisors LLC (“FMD Wealth Advisors”) is a Registered Investment Adviser.
This material is for general information only and is not individualized legal or tax advice. Consult your attorney and CPA regarding legal and tax matters specific to your circumstances. This content is intended to provide general information about FMD Wealth Advisors. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
Past performance is no guarantee of future returns.
Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Additional Important Disclosures may be found in the FMD Wealth Advisors Form ADV Part 2A. For a copy, please Click here.