The cost of divorce and its impact on families

on May 06, 2021 / by Financial Mindfulness

The cost of divorce and its impact on families.

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. A detailed 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”.

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 stress and 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 fewer 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 a 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 to spend 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.