Divorce Options: Mediation

In our first post about divorce options, we discussed Limited Assistance Representation. Our second installment in the series delves into the world of divorce mediation.

Mediation is often viewed as an advisable alternative to do-it-yourself divorce because it may lower the cost of divorce while allowing another individual — a mediator — to be involved in the process, in hopes of handling it more peacefully. A mediator’s role is to be a neutral third party who facilitates a discussion around issues such as property division (how to divide joint assets and liabilities, pensions and retirement accounts), alimony, and post-divorce medical coverage. If the couple has children together, other issues that may be discussed include custody, parenting time, holiday and vacation schedules, extracurricular activities, uninsured medical costs, child support, and, potentially, the contributions of each parent to the cost of college/higher education.

Mediators do not provide legal representation to the parties. Rather, they are trained and skilled professionals who foster dialogue between the parties in a respectful manner and discuss potential outcomes with them. An important aspect of the mediation process is that the couple comes in with an open mind and is willing to enter into discussions and compromise if needed. The parties are each advised to consult an attorney of their choosing before they sign anything to ensure that it is fair, reflects all of their wishes, and addresses all property, assets, liabilities, and child custody/support issues accordingly.

Some couples anticipate a traditional litigated divorce and both parties retain counsel, but later on realize they are more in agreement than previously thought. At this point, mediation can still be explored and utilized to resolve any issues that are not agreed upon. It can be helpful to have a neutral third party facilitate discussions that can open dialogue around sensitive topics, paving the way for resolution without litigation.

Divorce involving mediation often allows for a better future relationship with your ex-spouse because fighting may be minimized and all discussions are handled in private. This can be an especially good approach for couples who have children together because they are able to continue to have a relationship with one another post-divorce. Minimizing hostility is especially important for effective co-parenting.

However, mediation may not be a good option if you are likely to be manipulated by your spouse. The mediator’s role is to make sure that the divorce outcome is one that both parties can settle on, and not necessarily one that is fair to both parties. All financial information is presented voluntarily, so if you believe your spouse may be hiding assets, then this option may not be advisable. Most importantly, if you might feel uncomfortable properly advocating for your needs, then you may want to avoid this option.

If you need any assistance with a divorce or family law matter, please contact our office at 413-583-5196 or info@govelawoffice.com.

Reverse Mortgages Simplified – Common Uses of Reverse Mortgages

Part 2 of a guest series about reverse mortgages by Tony Lopes, Branch Manager/Reverse Mortgage Specialist, Reverse Mortgage Funding LLC (RMF). Be sure to read Part 1, Reverse Mortgages Simplified – Closing the Financial Gap for a New Generation of Retirees.

In our last blog post, we covered the basic concepts of reverse mortgages and how they can help some seniors live a safer and more secure retirement. Over the years the government has added many safeguards to the reverse mortgage program to make it more consumer friendly. In our third post, we’ll discuss those changes and safety measures that have made the program more approachable for a wider range of seniors. For this post, we’re going to discuss the four common uses that borrowers and their advisors utilize to improve financial sustainability through retirement:

1. Cash flow – One of the common uses of a reverse mortgage is to receive monthly payments from the proceeds generated by the reverse mortgage. Borrowers who struggle to make their monthly obligations can convert the equity in their property into tax-free* income, where they will receive a set amount of money per month for as long as they live in the property.** Converting equity into monthly cash flow can allow them to live a more financially secure retirement and in almost every case will increase their probability of financial success in retirement.

2. Standby Line of Credit – In recent years many prominent financial planning researchers have published studies on the advantages of setting up a reverse mortgage line of credit. They specifically looked at coordinating spending of home equity throughout retirement along with other cash assets. When a senior has no mortgage or a small mortgage on a property, they can utilize a reverse mortgage in the same way they would use a home equity line of credit. But in many cases the Reverse Mortgage Line of Credit has advantages over the standard HELOC:

a. Flexible Payment Feature – No monthly principle or interest payments are required, and there is no predefined loan maturity date. A borrower can choose to pay down the loan at any time or defer repayment.

b. Credit Line Growth – The unused credit line will grow over time, giving borrowers access to additional funds if needed.

c. The line of credit cannot be reduced or revoked by the lender, as long as the borrower meets their loan obligations (i.e. timely payment of taxes and insurance and maintaining the home).

d. Government Insured – 99% of the reverse mortgages originated today are insured by the Federal Housing Administration (FHA).

e. Non-recourse feature – A borrower can never owe more than the home is worth when the loan is repaid.

A reverse mortgage line of credit can be an excellent way to plan for unexpected expenses such as healthcare costs, home maintenance, and upgrades, or can just be a safety net for any of the unexpected expenses life throws at us.

3. Paying off an existing mortgage – Reverse mortgages can be utilized to pay off an existing traditional “forward” mortgage. If a person is over the age of 62, has a mortgage, and plans to age in place, a reverse mortgage can be a great way to pay off their existing mortgage. Using a reverse mortgage in this manner helps by freeing up the cash that the senior was paying on their monthly mortgage payment. Depending on the home value and balance on the existing mortgage, there may be additional funds available that can be utilized as a line of credit or can be disbursed monthly to the borrower.

A real example: A couple from Peabody was drawing money from their IRA to make a $1,500 mortgage payment. They used a reverse mortgage to refinance their existing mortgage to lose that $1,500 monthly payment, PLUS they can also draw $1,500 a month in tax-free* cash; which means they have a $3,000 per month positive cash flow swing by using this one strategy.

4. Rightsizing – A reverse mortgage can be used to purchase a home by combining a one-time investment of cash (down payment) with the loan proceeds from a reverse mortgage to complete the transaction. As with a traditional mortgage, the home being purchased secures the loan. However, unlike a traditional mortgage, there are no monthly mortgage payments, which can help increase cash flow. The borrower owns the home as long as they live in it. The loan does not have to be repaid until the home is sold or the borrower is no longer living in the property as their primary residence. For the loan to remain in good standing, the borrower needs to maintain the property and keep current with property related tax and insurance payments.

Through my years as an HUD-approved reverse mortgage counselor and as a loan originator I have seen many creative and helpful ways a reverse mortgage has improved someone’s quality of life in retirement. I’ve listed the common uses, but the less common uses are the ones that have can have the greatest benefit for seniors. Take Mary, who I counseled many years ago: She loved her home in Ocean City, NJ, where she and her deceased husband had lived for over 50 years. She was able to get by month to month but was unable to see her two sons and their families in Florida as often as she would like. Mary was cash poor and house rich, and she decided to see if a reverse mortgage may be able to help her. She was able to get a reverse mortgage line of credit on her property for over $300,000. Having access to this money has allowed Mary to travel to see her grandchildren at least once every six months, and her quality of life is better because of it.

Reverse mortgages aren’t right for everyone. But if someone is concerned about running out of money in retirement, they are doing themselves a disservice if they don’t research whether a reverse mortgage would help them.

* Not tax advice. Consult a tax professional.

**Must maintain the property and stay current with property related tax and insurance payments.

Tony Lopes is an experienced HECM Loan Specialist with Reverse Mortgage Funding, prior to originating loans he spent seven years as a HUD Approved Reverse Mortgage Counselor. Tony is available at alopes@reversefunding.com or 413-478-2013 to help educate borrowers and their families. Branch Address: 1325 Springfield St, Feeding Hills, MA 01030. NMLS # 1408098

Gove Law Office, LLC is a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles  a wide variety of legal needs, including residential real estate matters. For more information, please contact Attorney Michael Gove at mgove@govelawoffice.com.