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#133: Using a reverse mortgage to buy out spouse’s share in a divorce


The two of you have actually been living apart for the past two years (you in the home you own jointly, she in an apartment in Kentucky). Now in your early seventies (she in her late sixties) you had hoped to keep the marriage together despite your difference. However, she has made clear in recent weeks that she plans to file for an “amicable” divorce. In the course of her moving, you had already divided up the furniture and office equipment and even separated the joint cash and investment accounts.

Your soon-to-be ex has pension income and has begun receiving Social Security benefits, so there has been no mention of either of you needing to support the other. Your home has been fully paid for since 2018, so there is no monthly budget pressure from that end for either of you, and, until now, she has never she has never asked to be compensated for her share of the equity. Now, however, although you would like to remain in the home, you might need to cash in retirement assets (generating a tax bill) in order to buy her out; you fear selling the home might be the most prudent way of raising sufficient capital.

One consideration might be funding the divorce settlement by using the housing asset itself through a reverse mortgage. In order for the lender to allow you immediate access to the equity in the property, your divorce would need to have been finalized, with a court decree ordering you to pay her a certain amount of money (based on an appraisal of the property). In fact, the reverse mortgage proceeds might not totally cover your payment to her; what it would accomplish is avoiding the need for you to cash in significant amounts from your retirement investments. Importantly, moving forward, you would have no obligation to make monthly payments on that mortgage. You would continue to be responsible for upkeep, insurance, taxes and HOA fees of course, but since reverse mortgages are non-recourse loans, both you and your heirs would be protected from ever being “upside down” (owing an amount greater than the value of the home itself).

The legalities would need to be dealt with in divorce court, but a reverse mortgage might well be the least painful path in handling the home ownership transition from two to one.