Non-Borrowing Spouse Rights in a Divorce
Key Takeaways
- FHA protections for a Non-Borrowing Spouse (NBS) are voided by divorce.
- The younger spouse loses the right to remain in the home if the older spouse moves out.
- The loan becomes Due and Payable if the primary borrower relinquishes the home in the divorce.
The Federal Housing Administration (FHA) provides robust protections for an Eligible Non-Borrowing Spouse (a spouse who is under age 62 when the reverse mortgage originates). If the older borrowing spouse passes away or enters a nursing home, the younger spouse is legally guaranteed the right to remain in the home for life.
However, a major legal loophole exists that can devastate the younger spouse: Divorce.
The Voiding of NBS Protections
FHA guidelines explicitly state that the protections afforded to an Eligible Non-Borrowing Spouse are contingent upon them remaining legally married to the borrowing spouse.
If the couple divorces, the younger spouse immediately loses all FHA protections.
This means the younger spouse no longer has the right to remain in the home rent-free if the primary borrower dies or moves out.
The Principal Residence Requirement
Furthermore, a reverse mortgage requires the primary borrower to live in the home for the majority of the year.
If the divorce settlement dictates that the older borrowing spouse must move out of the house so the younger non-borrowing spouse can live there, the reverse mortgage goes into default. Because the primary borrower no longer occupies the property, the lender will declare the loan Due and Payable, regardless of the divorce decree.
If the loan is not paid off (either by selling the house or refinancing), the lender will foreclose on the younger spouse.
How Divorcing Couples Handle the Loan
If a couple with a reverse mortgage gets divorced, they generally have three options:
- Sell the Home: This is the most common outcome. The couple sells the home, pays off the reverse mortgage balance, and splits the remaining equity according to their divorce settlement.
- The Borrower Keeps the Home: The older borrowing spouse stays in the home and retains the reverse mortgage. They use other assets (retirement accounts, cash) to buy out the younger spouse's share of the equity.
- The Non-Borrower Refinances: The younger spouse wants to keep the home. Because they are not on the reverse mortgage, they must apply for a traditional mortgage in their own name, pay off the reverse mortgage, and buy out their ex-spouse.
Divorce involving a reverse mortgage is highly complex. You must consult both a family law attorney and a reverse mortgage specialist before finalizing any property division agreements.