For richer, for poorer: The financial impact of divorce

As you journey through life, ticking off life events along the way, you will undoubtedly experience some positive (and negative) twists and turns – some will be expected, whilst others not so much.

Divorce in Australia

Probably the last thing running through your mind on your wedding day is the unsettling reality that 35% of Australian marriages are likely to end in divorce.

In addition, the following stats can be sobering#^:

• January is often referred to as ‘Divorce Month’ due to the higher rate of divorce proceedings commenced in comparison to other months throughout the year.
  • Time off work for the festive season can put troubled couples in close (and often stressful) proximity to one another, which can serve to exacerbate underlying relationship issues. It’s also a time in which people reflect on their life as an individual, partnership and family unit.
• 97,000 people divorce each year, and 43% of divorces are applied for jointly by both partners.
• Nearly 1.5 million people, aged 25–64 years, are currently separated or divorced.
• 27.7% of marriages involve the remarriage of one or both individuals.
• 47.5% of divorces involve children, the average divorce involves roughly 2 children, and 97% of dependent children have primary residence with their mothers after a divorce.
• The median duration from marriage to divorce is 12.0 years, the median duration from separation to divorce is 3.6 years, and the median age of divorce is 45.3 years (men) and 42.7 years (women).

The reason(s) for divorce can vary according to individual circumstances (e.g. money, communication, equality, intimacy, infidelity, abuse etc.); however, there are often commonalities felt by all – the emotional, psychological and financial impact on the divorcees (and their children).

Importantly, whilst the emotional and psychological impact of divorce shouldn’t be ignored, the financial impact also needs to be carefully considered due to the implications that it can have on an individual’s personal finances over the short (1-4 years after divorce) and long-term (≥5 years after divorce).

The financial impact of divorce

A recent report^ has served to highlight important findings concerning the financial impact of divorce.

In a nutshell, the financial impact of divorce can be considerable. For example, it can take 5 years to recover financially after divorce; however, even after 6 years, a 20% difference can remain between the financial wellbeing of divorcees and those that are married.

Importantly, this can be due to the wide range of areas that are often affected by a divorce, such as employment and income, household income and spending, home ownership, and household assets (including superannuation) and debt, and how these can be interrelated.

Below we have provided you with several big-picture findings:

Employment and income

• There is an increase in employment participation by divorced women; however, their income is lower than married women. In contrast, there is little influence on the employment participation of divorced men; however, a divorced father has a higher income than a married father. This may reflect, for example, an increase in job mobility.
• Given Australia’s current gender pay gap (and the underlying influencing factors), men on average earn more than women.

Household income and spending (including spending on children – and their education outcomes)

• The advantages of a shared household are lost with divorce, which typically results in the expenditures for two separate households being higher in total.
• Primary responsibility for dependent children tends to reside with divorced mothers.
  • Divorced mothers often spend a higher amount of their household budget on necessities (e.g. groceries, clothing, utilities, transport, etc.) compared to divorced fathers and married couples. This can have a negative (and often distressing) effect on their spending capacity (and commitment) in other areas, such as private health insurance and education fees (including child care costs).
• Divorcees spend more on alcohol and meals outside of the house (e.g. restaurants, take-away, lunches, etc.) than their married counterparts.
• When dependent children are involved, divorce increases a child’s chance of becoming an early school leaver and decreases their chance of obtaining a university qualification.

Home ownership and household assets and debt

• Due to the sale of jointly owned property (e.g. family home), home ownership rates for divorcees are lower than married couples. This continues even 5 years after divorce.
• The total value of financial (e.g. cash, shares, superannuation, etc.) and non-financial (e.g. property, vehicles, collectables, etc.) assets owned by divorcees is lower than their married counterparts. This continues even 5 years after divorce. For more detail, please see below.

• Divorced men and women have lower superannuation balances than their married counterparts, 1-4 years after divorce; however, they tend to catch up 5 years after divorce.
• The total value of financial/property and non-property (e.g. credit card debt and personal loans) debt for divorced men and women is higher than their married counterparts, 1-4 years after divorce; however, it’s lower after 5 years. In contrast, divorced mothers and fathers have a lower total value of debt, 1-4 years and 5 years after divorce. This may reflect, in general, lower home ownership rates and where applicable smaller home loans. For more detail, please see below.

Moving forward

As you can see from the abovementioned findings, the financial impact of divorce on divorcees (and their children) needs to be carefully considered, especially concerning the implications that it can have on an individual’s personal finances over the short and long-term.

This point may be especially poignant considering the fact that divorce is occurring later in life. At a time where we are in our prime wealth accumulating and child-rearing years. As such, the financial impact can be considerable, especially with regards to our retirement prospects later in life.

With this in mind, appropriate advice and planning can serve to help divorcees get sorted during this difficult time in their life, whilst also pathing the way for them to work towards achieving their financial goals and objectives moving forward.

If you have any questions regarding this article, please do not hesitate to contact us.

#ABS. (2017). Marriages and Divorces, Australia, 2016.

^AMP.NATSEM Income and Wealth Report. (2016). Divorce: For richer, for poorer.