Oct 05, 2023
How a Reverse Mortgage in Canada can help during late-life separation or Divorce
With more Canadians facing late-life divorce, there is a need for innovative financial solutions to help with the financial intricacies of this complex and emotional process
This article was provided by HomeEquity Bank.
While the overall divorce rate in Canada has seen a consistent decline, there’s a notable exception to this trend – the rising prevalence of divorces among older couples who’ve been married for extended periods, often referred to as "grey divorces." According to data from Statistics Canada, the number of Canadians over 65 who experienced divorce surged by nearly 80% between 2010 and 2020.
Navigating the financial challenges of grey divorce
Couples who decide to part ways later in life face a distinct set of financial challenges. Their journey involves divorce’s emotional and familial complexities and the unravelling of a long-established financial partnership. These spouses have jointly managed their finances for many years, covering various aspects from building equity in their home to saving for retirement and assisting their children in funding their education.
Individuals must secure cash flow when this financial union dissolves to manage new expenses. These include legal costs associated with divorce proceedings and the financial demands linked to starting anew, such as locating and furnishing a new residence, and handling previously shared financial obligations like monthly bills and insurance premiums. The current inflation rates also pose an added financial hurdle for those restarting their lives.
The matrimonial home dilemma
For retirees, the decision to continue residing in the marital home holds immense sentimental and emotional value built up over the years. Speaking of building things up over time, it’s likely the marital home has also appreciated in value too. This means that financing the buyout of the family residence can be financially daunting.
Another problem is that retirees living on a fixed income can lack the means to generate new income and encounter borrowing difficulties due to the absence of employment earnings. They may want to dip into their retirement savings or investments to cover the home buyout cost.
However, doing this can result in substantial taxable events and the erosion of their long-term retirement savings, which may also affect their managed assets.
How can a reverse mortgage help?
Fortunately, an innovative financial solution is available to address this challenge– the CHIP Reverse Mortgage by HomeEquity Bank. This tool allows Canadian homeowners aged 55 and above to access up to 55% of their home’s value and convert it into tax-free cash. An appealing feature is that there are no monthly mortgage payments required, which can help free up additional cash.
By using the CHIP Reverse Mortgage, it can also help your client buy out the other spouse. To execute this strategy, the agreement requires the other spouse’s consent to relinquish their title to the shared home, accompanied by the implementation of a legally binding settlement agreement. The remaining spouse can then utilize the proceeds from the reverse mortgage to buy out their former partner.
It’s worth noting that funds obtained through the CHIP Reverse Mortgage are considered a loan and do not contribute to the client’s taxable income. Plus, it has no bearing on benefits such as Old Age Security (OAS). The partner who is bought out can also explore the option of using the settlement proceeds as a down payment on an alternative residence.
In the case of the Murrays, a divorced couple in their mid-70s owning a $1,740,000 property in North Vancouver, they’ve amicably resolved their marital issues through a "desk order divorce." Bob will be removed from the property title upon Mary’s payment of $870,000 for his share, with other investments evenly divided.
Mary will utilize the CHIP Reverse Mortgage, obtaining $685,500 in tax-free funds to settle Bob’s equity, while the remaining $267,500 will come from her savings. She can stay in the house, enjoying its appreciation without monthly mortgage payments, and allocate her reduced retirement income to cover daily expenses.
For further information contcat Neil "Mortgage-Man" McJannet