‘For Richer, Divorce For Poorer’ – The financial cost of Divorce

A summary of the AMP Report dated December 2016

AMP released an income and wealth report in December 2016 titled “For Richer, Divorce For Poorer” outlining the financial impact of divorce on home ownership and a separated individual’s financial position after separation. A copy of the full report can be accessed .

Financial position of divorced families without children

1. It takes approximately five years to recover from the financial impact of divorce and there continues to remain a 20% gap in the financial wellbeing of divorced and married couples, six years after a property settlement.
2. Divorces are now occurring later in life during people’s prime wealth accumulation and child rearing years, which only amplifies the financial repercussions of a property settlement.
3. The cost of divorce was $14 billion in 2014 in government assisted payments and court related costs, this is an increase of approximately $2 billion from 2012 levels.
4. Divorced women were worse off than both divorced men and married women.
5. Divorce has little or no impact on the employment status and income of men aged between 25-64 and leads to a greater workforce participation rate by women of working age who are divorced.
6. Home ownership rates drop following a separation. Home ownership drops by 16% for women who separate and 9% for men. People who have a separation and reinvest into the housing market have home ownership levels five years after a property settlement of only 85% of married couples.
7. The net asset position of a divorced man is 67% less than a married man of similar age and social economic background. A divorced woman has a net asset position 90% less than a married woman of similar age and social economic background.
8. Newly divorced women have debt levels 2.3 times the level of married women and three times that of divorced men. The report suggests that this may be due to the fact that newly divorced women struggle to meet everyday costs with a reduced income.
9. A man who has been divorced for 1-4 years, has approximately 28% less superannuation than a married man of similar age and social economic background, whilst a divorced female has approximately 75% less superannuation than a married female in the same circumstances.

Financial position of divorced families with children

10. The household income of parents who separate drops following separation and then rises once a divorce is granted. However, household income levels never fully recover to pre‑separation levels in the medium term.
11. As with divorced couples without children, divorce appears to have little impact on fathers’ participation in the workforce. Mothers who divorce have a higher participation than non-separated mothers for the five years following divorce.
12. Home ownership levels fall dramatically when comparing divorced parents as opposed to married couples with children.
13. The net asset position of mothers and fathers who have divorced is substantially lower than married parents. In the 1-4 years after divorce mothers only have 63% of the net assets of women in married households and have 79% of the net assets of married mothers five years after a property settlement.
14. Each time an individual divorces, their asset holdings are reduced by 9%.
15. A divorced parent who is 45 years old or less has 35% less net assets than a married person of the same age, while a divorced parent aged 45-64 years has net assets of only 25% of those of a married parent of a similar social economic background.
16. A divorced mother has 68% less superannuation than a married mother of a similar social economic background.
17. There is no significant difference in superannuation balances compared with a married father either immediately or five years after divorce.

Points to take away from this article

1. Retirement for divorced couples looks bleak.
2. It is clear that financially no one wins from a divorce.
3. Family breakdown increases a child’s chance of being an early school leaver by 6%.
4. A separation effects the highest education qualification of children. There is a decrease in males obtaining a university degree by 48.5% and in females the figure is 47.6% for children who separate verses those who have parents who remain together. The following table highlights the full educational outcomes of children (Table 9 of the Report):