The Divorce Attorney’s Guide to Reverse Mortgages as a Solution for Senior Divorce Liquidity Problems in Late-life Divorce

Late-life divorce creates unique complexities, especially when a couple needs to divide their largest asset (the marital home). As attorneys and paralegals, you skillfully navigate these senior divorce liquidity waters, balancing legal requirements with your clients’ emotional and financial needs. We share the goal of finding creative, sustainable solutions that let seniors move forward into retirement with stability and dignity.

Often, the biggest hurdle in a divorce after age 62 is liquidity. Fore example, one spouse desperately wants to keep the family home, but they have fixed incomes (social security, pension draws). Consequently, they do not qualify for a traditional refinance. This leads to a common and difficult impasse.

How can a Home Equity Conversion Mortgage (HECM) resolve the senior divorce liquidity dilemma in a late-life divorce?

The HECM is a tool resolving senior divorce liquidity problems. It provides the age 62+ spouse with sizeable tax-free cash for property equalization, requiring no monthly payments. Essential due diligence involves clean title and mandatory HUD counseling.

The HECM or reverse mortgage, can become a powerful tool in your divorce settlement toolkit. HECMs offer a non-traditional way to access home equity, providing the necessary funds for a buy-out. Plus, it does not force the remaining spouse to take on monthly mortgage payments.

Let’s explore how you can strategically use the HECM to achieve property equalization for your senior clients, ensuring their post-divorce financial security.

The Unique Financial Crisis of Senior Divorce Liquidity

The HECM, which is an FHA-insured reverse mortgage, is a non-recourse loan secured by the home only. It allows a borrower (who must be age 62 or older) to convert a portion of their home equity into cash. The loan does not require the homeowner to make monthly principal or interest payments. However, they must continue to pay property taxes and homeowners insurance, and keep the home maintained. The lender only requires repayment when the borrower moves out, sells the home, passes away. Obviously, defaulting on the loan (not paying property taxes or homeowners insurance) also triggers repayment.

The Role of the HECM in the Settlement

For your senior clients going through divorce, a reverse mortgage can meet their primary goal. It can generate tax-free cash to pay the soon-to-be ex-spouse their share of the home’s equity. HECMs allow the home to transfer entirely to the retaining spouse without requiring further mortgage payments. In this way, the client can preserve their retirement cash flow.

Younger divorcees may have access to only half the equity while older homeowners would. In their 60s, reverse mortgage borrowers can typically access about 40% of their home equity. Borrowers in the late 80s and 90s might be able to access up to 60%. Besides age, interest rates play an important factor. Credit plays a less central role in reverse mortgages.

Most of your senior divorce clients will likely be in their 60s, so a reverse mortgage may be only part of the senior divorce liquidity solution. Combined with withdrawals from IRAs or 401(k), a reverse mortgage and allow your client to keep hundreds of thousands of dollars in their retirement account to continue growing. It also can minimize their tax liability by minimizing their need to take out excessive cash from their traditional IRAs.

In practice, the HECM is a financial instrument that you, the legal professional, can specify in the divorce decree to resolve the property settlement.

Requirement #1: Age 62+

The spouse who intends to keep the home with a HECM must meet the FHA’s minimum age requirement of 62. For non-HECM reverse mortgages, age limits could be a low as 55 years of age. If both spouses meet the age requirement, the calculation for the available funds (the Principal Limit) is based on the age of the younger spouse. However, in a divorce buy-out, the spouse retaining the home will secure the HECM alone.

Navigating the Three HECM Buy-Out Scenarios Addressing Senior Divorce Liquidity

The specifics of the divorce settlement, primarily whether the house has an existing mortgage and who needs to be removed from the title, determine which HECM product you need to specify.

Scenario A: The HECM Refinance Is the Simplest Path

This scenario applies to situations when the house has an existing, traditional forward mortgage with a relatively low balance. Typically there must be around 50% equity. If the client already owns the house free and clear, so much the better!

The Situation: The spouse retaining the home (Borrower A) needs to pay off the existing mortgage and needs cash to pay the equalization amount to the ex-spouse (Borrower B).
The Mechanism: Borrower A applies for a standard HECM loan. The HECM funds pay off the existing mortgage first. Then, any remaining Principal Limit is then disbursed to Borrower A. Borrower A can then use that cash to satisfy the stipulated payment owed to Borrower B.
Attorney Focus: Ensure the settlement agreement clearly mandates the title transfer to Borrower A at or prior to closing. This releases Borrower B from all liability on the existing forward mortgage.
Note: Taking out all the equity possible at closing usually leads to the smallest financial benefit of all HECM options. It may only be as little as 13% or as much as 20% of the total home equity. Proprietary reverse mortgages (non-HECMs) may offer access to greater amounts of equity.

Scenario B: The HECM for Purchase (H4P) (The Downsizing Solution)

In cases involving a large, high-value marital home, both spouses often agree to sell and split the equity. This is a common and smart move, especially if they both want to downsize or move to different areas. In this scenario, the HECM for Purchase (H4P) becomes a powerful tool to secure each client’s future housing.

The Situation: Both spouses sell the marital home and receive their share of the equity proceeds. They would each then purchase a new, smaller, high-quality home. However, they want to ensure their retirement cash flow remains untouched.
The Mechanism: Instead of paying for the new home entirely in cash, your client uses their portion of the sale proceeds as the required cash down payment for the H4P. This usually amounts to just around 60% of the purchase price, depending upon their age and the prevailing interest rates. The HECM covers the remaining balance. This allows your client to finance a substantial portion of the new home with a reverse mortgage. This means they have no required monthly mortgage payments (only taxes, insurance, and maintenance).
Example: A $700,000 mortgage-free home sells, and your client receives $300,000 in proceeds after closing costs and paying off debts. They find a $500,000 home and use $300,000 to cover the HECM down payment and closing costs. Next, they finance the balance with a HECM for Purchase. They have thus bought a newest, perhaps more senior friendly home while eliminating their mortgage payment.
Attorney Focus: The settlement agreement must specify that the marital home is to be sold, and the net proceeds are to be split. This guarantees the client has the funds needed for the H4P’s cash requirement. The H4P is a clean, non-recourse way for the client to immediately resolve their long-term Senior Divorce Liquidity needs. Plus, they maintain their financial independence.

Critical Due Diligence for the Settlement Agreement

To protect your client and ensure the HECM closes smoothly, the divorce decree must address these essential financial and title details. We all know that ambiguity here creates costly delays.

Title and Vesting Must Align

The HECM loan is strict about ownership. The borrower must hold the property in their name only (or in an FHA-approved trust).

Actionable Step: The settlement agreement must explicitly mandate how the HECM borrower will take sole title to the property.
- Scenario A (Refinance/Buy-Out): The decree must mandate the execution and recording of a deed (Quitclaim or Warranty) from the departing spouse to the retaining spouse, vesting the property solely in the HECM borrower’s name before or concurrently with the HECM closing.
- Scenario B (HECM for Purchase): The decree must ensure the client takes sole title to the new property at closing, as required by the H4P guidelines.

Senior Divorce Liquidity and Calculating the Equity Buy-Out Amount

As the attorney, you will want to structure the equalization payment based on the Net Funds Available from the HECM, determined by Principal Limit (PL).

The Two Critical Limits

Maximum Claim Amount (MCA): This is the FHA’s cap on the home’s value used for the HECM. It is the lower of the home’s appraised value or the annual FHA maximum loan limit (e.g. in 2025, the limit was just over $1.2M).
Principal Limit (PL): This is the absolute maximum loan amount available to the borrower. It does NOT take into consideration equity or closing costs. Lenders calculate the PL by multiplying the MCA by a fixed factor based on the age of the youngest borrower and the prevailing interest rates.
Actionable Step: Calculating Available Equity
- The PL sets the ceiling for the available cash, which is essentially the amount of the homeowner’s equity they can access. Attorneys must perform this simple calculation to determine the limit for the equalization payment:

Net Funds Available = PL – (Existing Mortgage Payoff + Closing Costs)

The Mandate: You should structure the equalization payment to the ex-spouse as a fixed dollar amount. This amount must fit within the Net Funds Available. Avoid setting an equalization amount that the HECM cannot fully cover. If the couple has a large existing mortgage, that balance must be paid first. This reduces the amount of equity they can take out for the buy-out.

HECM Counseling is Non-Negotiable

The HECM counseling session may be a federally required step in getting a reverse mortgage, but that doesn’t mean is just more red tap. This service provides critical consumer protection and a final layer of due diligence for your client and your file.

What it is: The retaining spouse must meet with a HUD-approved, independent housing counselor. The counselor reviews all costs, obligations (taxes, insurance), and alternatives, ensuring the borrower gives informed consent.
Attorney Focus: Ensure the client completes this session early. The HECM lender will require the certificate of counseling before they can order the appraisal, which often slows down the process if not completed promptly.

Future Planning: Remarriage and Non-Borrowing Spouse (NBS) Status

If your client plans to purchase a new home using an HECM for Purchase (Scenario B), a critical question becomes, “What if your client plans to remarry soon?”

The HECM is structured to protect the borrower and, under specific conditions, a new spouse who is named a Non-Borrowing Spouse (NBS). If your client wishes their future spouse to have the right to remain in the home after the client’s death (tenure rights), that spouse must be properly documented in the HECM process at the time of closing. Here are two possible situations:

The Future Spouse is 62+: They should be listed as a co-borrower on the HECM and the title.
The Future Spouse is Under 62: They must be listed as a Non-Borrowing Spouse (NBS).

Failing to document a new spouse at closing means that if the client dies, the new spouse will have no federally protected tenure rights to remain in the home under the HECM program. If a new marriage is imminent, it may be advisable for the client to wait a few months or longer to complete the home purchase until the marriage occurs. This ensures the new partner can be properly included on the documentation, securing their future housing stability.

Securing Long-Term Stability for Senior Divorce Liquidity

The loan may be non-recourse, but the ongoing maintenance obligations pose the only remaining risk to the retaining spouse.

Actionable Step: Consider including language in the settlement that acknowledges the retaining spouse’s mandatory obligations. Again, these include property taxes, homeowners insurance, HOA dues (if applicable), maintenance, and, obviously, utilities. While the decree cannot enforce FHA rules, this documentation confirms the client’s awareness and helps safeguard the long-term stability of the settlement.

Partnering for Resolution and Senior Divorce Liquidity

Navigating property division for seniors often require divorce attorneys to look beyond conventional financing. Reverse mortgages, and particularly the FHA-insured HECM, can become the strategic bridge that allows a senior client to retain their most significant asset (the home) without sacrificing their retirement cash flow. It can allow them to remain in their community, preserve their social network, and avoid the overwhelming prospect of taking on a traditional mortgage during retirement. For your senior client willing to move, a HECM for Purchase allows them to split the home equity, purchase a new home, and have no future mortgage payments.

This complex transaction demands a collaborative approach. By understanding the HECM’s rules (especially regarding title, counseling, and the Principal Limit), you effectively protect the settlement and help your client step confidently into their next chapter.

I invite you to view the HECM not as a niche product, but as a powerful tool for achieving equitable and sustainable divorce settlements for your senior clients. Please leave me your questions in the comments below or reach out if I can provide case-specific guidance or connect you with a qualified HECM loan officer.