The cost of divorce: unhealthy spending, retirement ‘bleak’, huge benefit and court costs

We know that divorce – the unsettling reality for one in three marriages – usually has an immense but largely immeasurable emotional impact on couples and their children.

But the financial costs can be quantified – and a detailed recent report by the National Centre for Social and Economic Modelling for AMP (called Divorce: For Richer, For Poorer) shows a $14 billion cost to “the nation [in] government assistance payments and court costs”, up $2 billion from 2012.

Closer to home, divorce means financial stress increases for divorced families in almost every area.

“Divorce has a significant impact on families’ financial wellbeing, whether they have children or not, both in the short and medium term,” the report found. “While most families start to recover economically five years post-divorce, there remains a significant gap [20 per cent] in the financial well-being of divorced and married couples even five years later.”

The report found the median age of divorce for men was 45.3 years and women 42.7 years. It claimed divorce typically occurs during “couples’ prime wealth accumulation and child-rearing years”.

The division of assets caused the greatest financial damage, the report concluded, with retirement looking “bleak” for divorced couples because “super balances for divorced women are 70 per cent less than married women, and 28 per cent lower for divorced men compared with married men.”
“A divorced parent aged less than 45 years has 35 per cent less assets than a married respondent of the same age, while a divorced parent aged 45–64 years has assets valued at only 25 per cent of those of a married parent from a similar socio-economic background.”

In the short to medium term there were big differences in day to day expenses that could conceivably set up problems for years.

Household expenditure changed significantly before and after divorce, with the biggest differences experienced 1 to 4 years out from divorce. For divorced men and women with dependent children, spending on items such as groceries, utilities, meals eaten out and alcohol and cigarettes increased, while money spent on clothing and footwear, repairs, maintenance and insurance dropped. The changes remained five years and more after divorce, although the disparities had eased.

The proportion of a divorced mother’s total income spent on groceries climbed 27 per cent between 1 and 4 years after divorce, while the share of their incomes spent on utilities rose nearly 47 per cent. Their spending on health and medicines fell, while five years after divorce they were spending 45 per cent more on alcohol and tobacco.

Divorced fathers with dependent children increased their spending on education by 39 per cent inside the first 4 years of divorce. “This may reflect fathers having been the main income earner in the family and that paying for their children’s education is their main source of child support,” the report found. But divorced dads’ spending on also alcohol and tobacco by 53 per cent inside the first four years. Their grocery spending rose by nine per cent.

The report found: “Divorced mothers are more likely to experience financial stress than divorced fathers or couple families … One in five newly divorced mothers report they can’t afford spending on the kids such as school clothing, leisure activities, or school trips for their children. This compares with only one in 50 newly divorced fathers.”

This may be related to the one area fathers benefited from after divorce: income. “The income of a divorced father is 26 per cent higher than the income of a … married father. This may reflect increased job mobility in terms of location and type of work as well as an increased ability to accept higher paying work.”

The employment rate is also higher for divorced fathers than married dads five years after the divorce.

The report also claimed education outcomes for children from divorced families are slightly worse than for those families whose parents remained married. “Family breakdown increases a child’s chance of being an early school leaver (i.e. doesn’t complete year 12) by 6 per cent [and] decreases their likelihood of getting a tertiary education also by 6 per cent compared with children whose parents were married when they were 14 years of age.”

The  data came from the Australian Federal Government’s Household Income and Labour Dynamics Australia (HILDA) report conducted between 2001 and 2016, which was managed by The Melbourne Institute of Applied Economic and Social Research at the University of Melbourne.

In a sea of couple conflict, find stability with Financial Mindfulness

David and Lisa were filled with love and optimism when they wed amid colour and song in Hawaii in 1994 but like many couples, they recently separated.

With the holiday season over and the New Year sending them back to work and to their new solo routines, 2017 looks like a tough year ahead for the whole family. David, 51 and Lisa, 46 are parents to Joshua (8), Jake (13) and Bella (11).

Josh misses his dad while Bella is angry at her dad and hasn’t seen him for 4 months. She quit her after-school job at a retail chain because she has exams this year. Jake’s behaviour problems at school have worsened since the break-up.

David works as an executive in a chartered accountancy firm and has strong earning capacity but as a divorce seems likely he may have to give the house to Lisa as it’s simpler for the children to spend the school week with her.

Both David and Lisa have been emotionally and physically affected by the separation and are worried about the future. Although each have big financial worries they have become less careful with money, sometimes spending to numb emotions like anger, grief, loneliness and sadness.

Both David and Lisa would see improvements to their mood, energy and sense of security if they introduced proven mindfulness practices into their lives, especially around how they use money – in other words, Financial Mindfulness. Mindfulness is not, as some people believe an attitude, but is better described as the regular practice of moment-by-moment awareness.

A ‘financial wellness’ study of PwC employees found 52 per cent stressed about their finances with 45 per cent reporting more financial stress in the last 12 months. More than half of Australians say personal finance issues are the leading cause of stress in their life, according to the Australian Psychological Society.

Reconciliation after 23 years of marriage seems unlikely for David and Lisa. The couple argued loudly at home for six years before they agreed he would move out.

Lisa is angry and feels disrespected and that David has been a poor husband, although she accepts he has mostly been a good provider and done his best as a father. She accepts some contact with their father is good for the children but struggles with any interaction with David.

“How can I trust anything he does now?” she often hears herself saying to friends and family.

Lisa feels resentful with three children to look after, and tries to make herself feel better by socialising with friends over dinner, at concerts and art galleries, pampering herself (at health retreats when David has the kids). She has taken a few short holidays and one extended one to Britain where her sister and her husband live and then through Europe. She also re-joined the gym because she is drinking and eating more and has started smoking again. She is still working in human resources as a consultant but has a rising credit card debt.

David now lives alone in a two-bedroom apartment 30 minutes from the family but still does maintenance on the house he owns with Lisa, though he isn’t welcome to let himself in. He also maintains their investment property. Since the separation (7 months ago), David drifted into depression and is finding seeing the children for only 3 days each fortnight difficult. He is working longer hours, going out for late dinners, is drinking more and goes on fishing and golfing trips with old friends.

He has also increased his spending on his two collecting hobbies: wine and sports memorabilia but is also gambling too often. He recently lost his driver’s licence for drink-driving.

“I sometimes wonder what the point is to any of this,” David often thinks. “Without the kids there wouldn’t be much to life for me.”

Both David and Lisa are doing individual therapy and meet for family counselling once a month. But growing financial pressure and stress is not helping their coping skills and both find themselves unhappy and snapping at their children sometimes.

In the coming months, separated couples like David and Lisa, going through these very normal life changes, can find some respite by empowering themselves with the comprehensive one-of-a-kind personal program to be delivered by Australian start-up company Financial Mindfulness.

Financial Mindfulness will bring a completely new element to the world of personal financial behaviour by giving people medically and scientifically-proven tools to make spending decisions that they will be proud of later (instead of regretting).

“Everybody has a need to manage their financial affairs in a complex world. We understand people would like to improve their financial wellness.”

“We can actually help, for the first time people can choose a comprehensive, medically tested personal pathway of actions, to take responsibility in dealing with their financial stresses. A personal program as an app, also transferrable to your computer.”

“Financial Mindfulness creates a pathway for users from the experience and impact of ‘financial stress’ to one of financial health, wellness and fulfilment.” says Financial Mindfulness Founder & CEO, Andrew Fleming.

“As a result people like David and Lisa will become more self aware and take responsibility of their unhealthy financial habits and use the tools of our program to form new healthier behaviours over time.  This improves their self-esteem, their productivity at work and by extension, improve the lives of their children.”

Our vision, for sufferers of financial stress to experience financial wellness.

Watch this space to see how Financial Mindfulness will help you!