Thomas Mastromatto, Certified Divorce Lending Professional

LENDER’S CORNER

THE GRAY DIVORCE: IS A REVERSE MORTGAGE AN APPROPRIATE TOOL?

It is an unfortunate fact that we are now seeing an increase in divorce by Senior Citizens. Clearly this is an issue that

presents many different challenges to all involved in the dissolution, whether it be the lawyer, the financial professionals,

or other professionals providing advice to the parties. These 60+ divorcing couples do not have many of the traditional

problems associated with a marital dissolution, but there are also new challenges that are presented by this age group.

Some of the new issues to be explored include (but may not be limited to);

Social Security Issues.

Pension, Profit Sharing, 401K and/or other retirement accounts.

Investment Assets of the Parties.

Tax issues relating to those plans.

Expected reduction in earned income.

Shared Liabilities: i.e. Mortgages, Credit Cards, Other Liens

Maintaining the Marital Residence, or purchasing new marital residence(s).

While these are significant issues, this paper will focus only on the final point. How can the parties maintain the marital

residence (if that is their desire) or how do they qualify for purchasing new separate residences in light of the potential

reduction in income available for servicing a mortgage on those residence(s)?

Although not a panacea, the concept of a reverse mortgage should be considered by the parties and their financial advi-

sors as a potential solution to the long term housing problems about to be encountered by the parties.

At the onset, we need to define what a reverse mortgage is, and then we can discuss how it can be useful to the parties.

In the most simplistic discussion, a Reverse Mortgage provides liquidity to the parties by not requiring monthly Principal

and Interest payments on a mortgage of residential property that is lived in by the parties. More importantly, it is in-

cumbent on the financial professionals to be able to assure their clients about what a Reverse Mortgage is not. Several of

the FAQ’s related to Reverse Mortgages are important to be repeated here.

The party owns the home until they either die, no longer qualify for the Mortgage, or they decide to sell the

home. The parties are responsible for the payment of the Real Estate Taxes and Insurance on the home, as

well as maintenance of the property.

Any equity in the property at the date of death, or sale of the property, prior to death, is passed to the owner

(s) or their heirs.

The entire loan is a non-recourse loan that is insured by the Federal Government. The lender, HUD & FHA

can only look to the net sales proceeds of the property to satisfy the loan repayment.

If there is a negative equity in the property at the termination of the loan, there is no liability for that nega-

tive equity.

What are the qualifications of the parties for purposes of obtaining the Reverse Mortgage?

Age qualifications. The youngest person on the title must be 62 or older.

Currently there are no income or credit qualifications, however HUD has announced plans to implement fi-

nancial assessment and minimums in 2015 or after.

Must demonstrate the ability to maintain property, to include Insurance and Real Estate Taxes, while resid-

ing in the property.

Using the Reverse Mortgage in a Divorce Situation.

Thomas Mastromatto, Certified Divorce Lending Professional NMLS#145824

LENDER’S CORNER

NMLS #145824

Let’s look at a few scenarios that illustrate how the divorcing parties may be able to benefit from the use of a Re-

verse Mortgage. (In all of our scenarios we have assumed that the youngest of the couple is 62 years old, and we

have assumed a 50/50 marital distribution.)

Scenario 1 – Parties own the home free and clear, and the home is a significant financial assets subject to asset

allocation. One Party wishes to retain the home as part of the marital settlement. Parties have significant other

financial assets but they are not sufficient to fund the marital property settlement. Also, the parties’ income is not

sufficient to qualify for a larger conventional mortgage on the existing property.

Solution – The party wishing to retain the home takes out a mortgage up to 50% of the appraised value of

the property. The cash proceeds can be used to provide additional cash to fund the marital settlement as

well as cash for current expenses and investment. Because there was no mortgage on the property, the an-

nual cost to maintain the property remains the same as before.

Scenario 2 – Parties own the home with a mortgage, all other facts being the same as above.

Solution – The retaining party uses the proceeds to pay off the existing mortgage, as well as to fund the

marital settlement. Because the new mortgage does not have any P&I payments, the monthly cash flow of

continuing ownership of the property will be reduced to the retaining property.

Scenario 3 – Parties agree to sell the home as part of the marital settlement, however, each has a need to pur-

chase a new residential unit, but cannot invade the investment assets for the purchase of the property due to the

fact that those assets are necessary to provide annual living costs and expenses.

Solution – The parties each get a Reverse Mortgage of 50% of the lower of the appraised value or purchase

price of the new residences and they use the proceeds from the sale of the Marital Residence to fund the bal-

ance. No investment assets are invaded so the investment income is stable for the future.

Scenario 4 – Parties agree to sell the home, and each has a need to purchase a new personal residence, but do

not have the continuing post-divorce income to qualify for a conventional mortgage.

Solution – In this case a Reverse Mortgage may be the only option for the parties because currently there

is no minimum income or credit requirements on the parties. Assuming that the continuing Real Estate

Taxes and Insurance would be less than the rent expense for a new residence, the parties increase their cur-

rent cash flow.

Summary:

Simply put, a Reverse Mortgage is a financial instrument that can be used to monetize the Senior’s equity in the

marital residence. It is a loan based on the property value rather on the borrower’s ability to repay. This vehicle

can provide Senior’s / Retiree’s with limited income with a source of current cash for settlement purposes, or also

for a line of credit, current cash, or both for future financial concerns.

This article has only looked at the Reverse Mortgage as a tool for financial planning for one of the issues discussed

above. However, this valuable opportunity is not a one size fits all, and it is incumbent on the financial advisor to

fully understand the Senior’s current and future needs, and determine whether this is a viable alternative for their

client.

About the Author—Robert E. Kleeman, Jr is a CPA with a nationally known practice in the area of valuation,

commercial damages and complex marital litigation. Mr. Kleeman is the Primary Author of the book The Hand-

book of Divorce Valuation published by John Wiley and Sons. Mr. Kleeman can be reached at 303 771 8100,

BobKleeman@OnPointEvaluation.com.

Mr. Kleeman would like to thank Joe D. Boyd, Reverse Mortgage Professional (NMLS ID 276936) of American Ad-

visors Group (AAG) Oak Brook, IL for his technical assistance with this article. He can be reached at 630 440

6165, JBoyd@AAG.com.

Thomas Mastromatto, Certified Divorce Lending Professional (CDLP)

SIDE BAR DISCUSSION

NMLS#145824

ADVICE FOR GREY DIVORCES

If you’re more than 60 years old and divorcing, collaboration or mediation can be your best hope of preserving your family’s finances. By Nathalie Boutet , Boute Family Law

Much has been written about the fact that divorces

amongst older couples – sometimes referred to as “grey

divorces” – are steadily increasing. If you are older and

considering a separation, this article will serve as a

guide for how you can prepare yourself for this destabi-

lizing event.

In the literature I consulted while researching this sub-

ject, authors all point to three important tips: collabo-

rate, cooperate, and work together. At age 60+, people

have reached, or are close to reaching, the peak in their

earning capacity. They may be past the time when they can easily make up for the substantial financial

set back of a separation and it may be harder to qualify for a mortgage. Separating couples need to ap-

ply intelligence and collaboration when they work together if they want to preserve what they have

and minimize spending on lawyers and other professionals.

Emotional Implications

To help you work collaboratively with a former spouse and minimize the legal fees, you need to first

work through your own feelings about your life and the separation. It is no longer taboo to get help

through a personal development course, a personal coach, a therapist, a support group, or similar heal-

ing services. In fact, the opposite is now the reality: you may be perceived as the weak one if you

don’t access such services.

Anger and resentment towards your former spouse likely occupy a large part of your thoughts. The

danger is that people do not know how to differentiate between their anger towards their spouse and

the legal issues that have to be decided. They end up unconsciously giving instructions to their lawyers

from a place of anger. The legal process then becomes aggressive, adversarial, and unnecessarily cost-

ly. This is the most pervasive problem people face during the divorce process.

Further, you may not have the skills to handle strong emotions you may experience – such as guilt,

anger, or sadness arising from how your children or family members react to the separation. It won’t

help you to negotiate while you are consumed with these sentiments.

Thomas Mastromatto, Certified Divorce Lending Professional NMLS #145824

SIDE BAR DISCUSSION

During a lengthy marriage, you will also have created several counterproductive ways of dealing with one

another that will make it difficult to work constructively with your former spouse during the legal process.

Finally, you likely lack the skills to communicate your opinion in a manner that your former spouse can

calmly accept and understand. Instead, you’ll probably push each other’s buttons when you discuss what

you want to achieve in the divorce.

Taking time to work on yourself – to become present to and to address your negative feelings towards

your spouse, your marriage, or other aspects of your life – will ensure that you don’t bring your anger and

negativity to the negotiation table. Poor communication and unresolved emotions are issues in almost all

separations – be they grey, blond, black, or brunette. These are crucial issues that, if addressed properly,

can make a world of difference to you and your family.

Financial Implications

In addition to taking care of your emotional well-being, you also

need to become familiar with your financial situation. If you were

not the spouse who regularly handled the family’s finances, you

should sit down with a trusted financial advisor to acquire a good

understanding of your financial situation before you start to negoti-

ate your legal issues.

You need to know the sources of income that are available both now and after retirement, what assets and

debts your family has at this time, and what are the big expenditures that will surface in the future –such

as children’s university costs, weddings, long-term care, caring for elderly parents, etc.

You need to understand which healthcare benefits exist now, and which will be available after a divorce

and at what cost. Several health plans do not permit a former spouse to remain a beneficiary after a di-

vorce.

Find out what life insurance is in place on your and your former spouse’s life. If life insurance is needed

but the spouse does not qualify because of health reasons, find what other means there are to secure a fi-

nancial obligation.

A Will remains valid throughout a separation but becomes null and void after a divorce. You may need to

re-think your Will and also update your Powers of Attorney for your personal and financial care.

SIDE BAR DISCUSSION

NMLS #145824

In most couples, one person is more financially savvy than the other. Not to worry. The legal system is

designed to ensure that both spouses receive the financial information they need to help them make deci-

sions about their legal separation. Whether your separation will take place using collaborative law, media-

tion, other forms of lawyer-assisted negotiation, just as it is the case in the court system, you are obligated

to disclose all of your financial affairs and entitled to receive all of your former spouse’s financial infor-

mation. When couples work together to find intelligent ways of sharing their assets and to make sure that

each has what they need for their future life, they inevitably find creative solutions that both can live with

– without needlessly depleting life-savings on professional fees.

Legal process, lawyers and other professionals

Separating couples have several choices of legal processes to complete the legal separation. They are: col-

laborative practice, mediation, traditional lawyer-assisted negotiation, arbitration, and court. Even though

both collaborative law and traditional lawyer-assisted negotiation may appear similar because they both

involve negotiating with the assistance of lawyers, only the collaborative system is designed to use peo-

ple-friendly negotiation techniques known to make the negotiation process easier for the participants.

Most separations should be able to be completed without accessing the more adversarial court system,

which are means of last resort.

I favor collaborative practice and mediation because of the quality of results these systems consistently

deliver. You should take the time to read up on these systems and develop your own thinking about them

before going to see a lawyer. This is because if the lawyer you go to see does not practice collaborative

law or mediation, he or she may dissuade you from accessing these services.

In addition to lawyers, you may benefit from the assistance of other professionals, such as financial plan-

ners, financial divorce specialists, accountants, house and business valuators, and mortgage brokers. Your

lawyer will act as the quarter-back and will help you decide what other professionals could enhance your

negotiating team.

Conclusion: There are three things separating people should implement to minimize the trauma of

a separation:

1. take care of your own emotional situation,

2. have a clear understanding of your and your former spouse’s financial needs, and

3. work with one another, not against each other.

The rest – meaning your work with lawyers and other experts, getting through the actual physical separa-

tion, dealing with your children, and achieving a fair financial settlement – will fall into place. Be the

leader of your life and demand that your legal team helps you work together to preserve your family’s

wealth through the divorce process.

Thomas A. Mastromatto

928-533-6593

Retired Worker Fully Insured (40 credits), attained age 62, filed an application

Divorced spouse benefit - (been divorced 2 yrs or less, married totaling 10 yrs)

Be the divorced spouse of NH entitled to RIB or DIB, attained age 62, filed an application, not currently married, claimant must not be entitled to a RIB based on a PIA which = to or greater than 1/2 the PIA of the NH

Independently - Entitled Divorced Spouse - (divorced at least 2 continuous yrs, married totaling 10 yrs)

Be the divorced spouse of a fully insured worker age 62, attained age 62, filed an application, not currently married, claimant must not be entitled to a RIB based on a PIA which = to or greater than 1/2 the PIA of the NH

Eligibility Requirements

Spousal Benefit - (married at least 1 year) Be the spouse of NH entitled to RIB or DIB, attained age 62, filed an application, claimant must not be entitled to a RIB based on a PIA which = to or greater than 1/2 the PIA of the NH

Age Worker Spouse

62 75% 70%

63 80% 75%

64 86.66% 83.33%

65 93.33% 91.67%

66 100% 100%

67 108% 100%

68 116% 100%

69 124% 100%

70 132% 100%

Reduction/Credit by Election Age Year of Birth Full Retirement Age

1937 or earlier 65

1938 65 yrs 2 mos

1939 65 yrs 4 mos

1940 65 yrs 6 mos

1941 65 yrs 8 mos

1942 65 yrs 10 mos

1943-1954 66

1955 66 yrs 2 mos

1956 66 yrs 4 mos

1957 66 yrs 6 mos

1958 66 yrs 8 mos

1959 66 yrs 10 mos

1960 or later 67

Widow (survivor) Benefit - (married minimum 9 mos)

Be the widow of a NH who died fully insured, attained age 60, be unmarried unless you remarried after reaching age 60, filed an application, not be entitled to RIB = to or greater than the deceased NH's PIA, proof of NH's death

Surviving Divorced Spouse Be the surviving divorced spouse of a NH who died fully insured, attained age 60, be unmarried unless you remarried after reaching age 60, filed an application, not be entitled to RIB = to or greater than the deceased NH's PIA, proof of NH's death

Eligibility Requirements (Rightstart Mortgage Inc #145824)

Deceased DID file

Filed prior to FRA: Max Widow Benefit = Larger of deceased reduced benefit or 82.5% of deceased PIA

Filed After FRA: Max Widow Benefit = Deceased Benefit including Delayed Retirement Credits

Deceased did NOT file

Died prior to FRA: Max Widow Benefit = PIA of Deceased

Died after FRA: Max Widow Benefit = Deceased benefit as if deceased elected on date of death including Delayed Retirement Credits

Widow Options Widow Full Retirement Age

Date of Birth FRA Through 1/1/40 65

1/2/40 - 1/1/41 65 yrs 2 mos

1/2/41 - 1/1/42 65 yrs 4 mos

1/2/42 - 1/1/43 65 yrs 6 mos

1/2/43 - 1/1/44 65 yrs 8 mos

1/2/44 - 1/1/45 65 yrs 10 mos

1/2/45 - 1/1/57 66

1/2/57 - 1/1/58 66 yrs 2 mos

1/2/58 - 1/1/59 66 yrs 4 mos

1/2/59 - 1/1/60 66 yrs 6 mos

1/2/60 - 1/1/61 66 yrs 8 mos 1/2/61 - 1/1/62 66 yrs 10 mos 1/2/62 or later 67

Filing Options - Married/Divorced 62 CAN'T 63 "Restrict to only spousal"

64 "Suspend"

65

FRA → 66 CAN 67 "File & Suspend"

68 "Restrict to only spousal"

69 "Suspend"

70

RIB - Retirement Insurance Benefit DIB - Disability Insurance Benefit NH - Number holder (worker) PIA - Primary Insurance Amount FRA - Full Retirement Age

COLA 1.5%

Maximum Taxable Earnings $117,000

Quarter of Coverage $1,200

Earnings Test Exempt Amount

Year individual reaches FRA $41,400/yr ($3,450/mo)

2014 Social Security Facts

Under FRA $15,480/yr ($1,290/mo)

Born between 1943-1954

First 36 Months Months in Excess

of 36

Spousal 25/36 of 1% /mo 5/12 of 1% /mo

Retirement 5/9 of 1% /mo 5/12 of 1% /mo

Reduction Percentages

Abbreviations

9/5/2014

Thomas Mastromatto, Certified Divorce Lending Professional NMLS #145824

Divorce Money Matters

NMLS #145824 Thomas Mastromatto, Certified Divorce Lending Professional (CDLP)

Baby Boomer Attitudes on Housing Might Surprise You

by Jann Swanson Posted to MND NewsWire

A survey of attitudes toward housing released on Thursday by The Demand Institute indicates that the Baby

Boom generation still has no intention of aging gracefully. In fact, when it comes to housing it appears

few intend to yield at all to their advancing years.

The Institute, a nonprofit run by the Conference Board and the Nielson ratings people, surveyed 4,000

households last year in which residents qualified as members of that huge post-war generation born be-

tween 1944 and 1963 about their future housing plans.

The survey found that as a group Baby Boomers had a median net worth of $200,000 in 2007 and were on

their way to accumulate nearly $370,000 by 2013.

Instead the recession sent many off the rails and at

the time of the survey that median net worth was

down to a median of $143,000. Although many

Boomers have delayed or modified their

plans due to the recession they have, the Institute

says, not abandoned them entirely. Over the next

five years it is expected they will spend $1.9 tril-

lion on new home purchases and $500 billion on

rent.

Whether for financial reasons or by choice the ma-

jority of the generation is still working but 58 per-

cent plan to retire within five years. Among younger members, those 50 to 59 at the time of the sur-

vey, only 23 percent were retired while 34 percent planned to be within that time frame. Sixty-nine per-

cent of the older group, those 60 to 69 years of age, were already retired and 80 percent had plans.

Whatever their working plans, the survey

found that the generation has some counter-

intuitive plans for their housing. Thirty-

seven percent said they plan on moving, but

while the common wisdom has older folks

downsizing as they age, 46 percent of those

who plan to change locations are looking for

nicer homes or more space. Nearly half plan

to spend as much or more money on housing

after they move.

interested in residing in a senior community

or retirement setting.

Divorce Money Matters

NMLS #145824

The Institute says the 46 percent of those respondents who are looking for a larger home or plan to

spend as much or more as they currently do are less affluent than the respondents overall and many de-

layed their housing plans because of the recession and its impact on their finances. They have median

net worth of $40,000 and currently live in a home with a median of 1,200 square feet. "Downsizers"

on the other hand live in a median 2,000 square foot home (compared to 1,600 for all respondents) and

have median net worth of $322,000.

"Upsizers are finally looking to purchase their

dream home," the report says. "Many in this

group will move from renting to owning, but

they are not necessarily looking to spend lav-

ishly - the median price of their next home will

be $180,000, less than the $200,000 of the

more affluent "Downsizers."

The "Downsizers" are either looking for a

smaller home or to spend less for a home simi-

lar in size as they own or currently occupy.

"Many are currently living in larger, more ex-

pensive homes that will be difficult to maintain

as they age. But just because they are looking

for smaller homes, it doesn't mean they are nec-

essarily looking to settle. Many will seek

homes with high-end finishes and nearby ser-

vices and amenities."

Those who plan to move won't go far. Sixty-

seven percent say they will stay in the same state and a quarter plan to stay within 10 miles of their cur-

rent homes. The remaining third are motivated as much by wanting to live closer to family as they are

by a change of scenery or climate. Maintaining connections to friends and community is an important

consideration and only about 20 percent of those who will move are interested in residing in a senior

community or retirement setting.

Whether downsizing or not, most Baby Boomers who plan to move will continue to live in single fami-

ly homes and most intend to buy. While slightly less than half currently live in one-level homes one is

an overwhelming choice for the next home. Despite the maintenance, most still want a house with a

garden or yard.

The Institute asks if all Boomers are making the most prudent housing decisions as they approach re-

tirement. "Not necessarily," they say. "Regardless, their decisions will have important implications as

this generation, once again, does it their way.

NMLS #145824

NMLS #145824 Thomas Mastromatto, Certified Divorce Lending Professional (CDLP)

Divorce Puzzle Pieces

A Study from Ohio’s Bowling Green State University shows that one

quarter of all American divorces now involve someone 50 or over

– more than double that of just 20 years ago. While those seeking

late-life or ‘grey’ divorces, as they are sometimes called, tend to have

a rosier outlook than their younger counterparts of life after the

dissolution of a marriage, older divorces also face unique financial

problems that others do not. Odds are accumulated assets, from real

estate to retirement savings, are substantial and entwined, and

impending retirement can make a favorable financial split

particularly tricky.

According to a study from AARP, more than one in four of grey

divorces fear not having enough money in their post-split lives, a fear that comes second only to loneli-

ness. This is particularly true among women who were four times more likely than their male counter-

parts to be concerned with the negative effect of divorce on their finances.

The Grey divorce is defined by the growing trend of high divorce rates among Baby Boomers.

In 2009, 1/4 People over 50 divorced.

In 1990, 1/10 People over 50 divorced.

A little divorce humor…..