When divorce is becoming less common for younger adults, the so-called “gray divorce” is rising.
Couples can divorce later in life for the same reasons younger couples split up – but when you’re over 50, these reasons are framed by aging and the realization that you have more years behind you than ahead of you.
Impact of the Gray Divorce
While there may be differences in the emotional impact of divorce for couples who end their marriage later in life, the most significant difference is that there is less time to recover financially. There are all sorts of statistics and charts on divorce. For example, since the 1990s, the divorce rate for adults 50 and older in the United States has roughly doubled, according to findings from the Pew Research Center. In fact, for adults 65 and older, the divorce rate has tripled over that same period.
Whether it’s because divorce is more acceptable now than it was in the past or because more elderly couples are running into unresolvable issues during retirement, many factors contribute to the high divorce rate among seniors. While divorce is never easy, it can be uniquely challenging for seniors.
Regardless of the ‘why,’ serious financial considerations for divorcing seniors may impact housing and real property concerns. And housing is a primary necessity irrespective of age.
Part of the divorce process is dividing marital assets. However, the market value of an asset isn’t always the only consideration when you’re making these decisions because some assets may be more useful later in life than others. For example, there may be future benefits to the spouse retaining the marital home.
Housing Benefits for Seniors
- Property taxes can be a steadily rising expense for homeowners of any age. Is a Senior Property Tax Exemption available?
States often provide tax exemptions for senior citizens who have reached certain ages. Some areas may base eligibility on Social Security status. The details of the senior exemption vary based on the state, and there are often residency and income restrictions. Some of the statutes defer the taxes until the property is sold.
For details, contact your local department of revenue. Of course, you’ll have to read the fine print, but it’s still worth looking into the tax laws in your area.
Another type of exemption to look into is the Homestead Exemption. If taxpayers use a home as a primary residence, they may qualify for a homestead exemption. The majority of states have homestead property tax exemptions that allow you to protect a certain amount of the value of your primary property from taxes. This can be structured to either allow you to exclude a flat amount for a percentage of the taxable value.
- You are eligible for a reverse mortgage beginning at age 62. A reverse mortgage offers a potential stream of income.
- Primary residences receive special treatment for people qualifying for public benefits such as Medicaid.
- Tax benefits such as deductions for mortgage interest and taxes and exclusions from gains upon the sale can be significant later.
- Owning a home can also be an avenue for potential rental income; whether renting out a portion of the house or in later years, a divorced senior may move in with their children, a retirement home, etc., and renting out the entire home for income.
- And one of the best investments in homeownership is equity – having access to that equity can sometimes be a challenge, especially if there are limited income sources for mortgage qualification requirements.
There is no way to sugarcoat the ramifications of divorce for seniors. Your wealth will drop by half, for starters, assuming you split everything equally. At the same time, your expenses will increase with separate residences and two sets of bills for everything from utilities to insurance. Researchers found that the standard of living for women who divorce after 50 drops an average of 45 percent; it’s 21 percent for men.
In addition, the home you had planned to retire in may have to be sold, and the proceeds split.
Often one or both spouses will have an emotional attachment to the marital residence. In many cases, the home where the children were raised and many memories remain. Barring any emotional attachment, the house is simply a marital asset. If one of the spouses keeps the residence, they may have to acquire their spouse’s ownership equity. If there is a significant amount of equity in the property or if the house is fully paid for, the spouse who wishes to keep the residence will often have to take on significant debt to purchase their spouse’s equity share.
Divorcing Seniors may have more hurdles to overcome when obtaining mortgage financing due to lower incomes, among other things. Working with a Certified Divorce Lending Professional, CDLP™, can help seniors identify potential opportunities for staying in the marital home or purchasing a new home.
Working with a CDLP™
Divorce Mortgage Planning with the help of a CDLP™ can help identify possible solutions and assist both parties to let go of counterproductive positions and emotions while taking stock of possibilities, resources, and solutions.
- A CDLP™ can help identify sources of qualified income that may help the retaining spouse either qualify for an equity buy-out refinance now or at least develop a mutually acceptable plan to obtain mortgage financing in the future, hopefully, sooner rather than later.
- A CDLP™ can help identify opportunities and solutions for the vacating spouse to purchase a new home while still on the note to the marital home. For example, making sure there is a court-ordered assignment of debt and sufficient verbiage in the marital settlement agreement or Memorandum of Understanding omitting the existing debt from their debt load on the new purchase mortgage.
Successful divorce negotiation results from effective communication and strategic negotiations in such a manner that both divorcing parties come out of the divorce whole or at least on the road to recovery.
Working together as a team and incorporating divorce mortgage planning into the negotiation cycle with a Certified Divorce Lending Professional will ultimately result in a better solution and better outcome for the divorcing couple. Certified Divorce Lending Professionals have a different perspective and ultimately provide a better solution for both the professional divorce team and the divorcing homeowner while at the same time protecting their ability to obtain mortgage financing in the future.
Do you have questions about how divorce may impact your ability to obtain mortgage financing? A Certified Divorce Lending Professional's (CDLP™) knowledge and experience can help make the transition much smoother and more successful for all parties involved.
Working with a Certified Divorce Lending Professional (CDLP™) and incorporating Divorce Mortgage Planning into the divorce settlement may help both spouses obtain new mortgage financing post-divorce.
Contact a CDLP™ today for a copy of the Divorcing your Mortgage Homeowner Workbook, a guide to credit, real estate, and mortgage financing after divorce. This workbook will help you get organized, be prepared, and understand your mortgage financing position whether you are needing to refinance the marital home in an Equity Buy-Out situation or prepare to sell and purchase a new home post-divorce.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations. The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
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