The financial impact of divorce

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Joint research led by the Australian Institute of Family Studies has found that equivalised household income after divorce declined for women but not for men.

The research found that some women were able to recover their income after six years through re-partnering, increased labour force participation, and an increased proportion of income coming from government benefits.

However, Australian Institute of Family Studies Director, Professor Alan Hayes said this is not the case for divorced women with dependent children.

“Divorced women with dependent children found it difficult to recover their income post-divorce. We know from other research that sole mothers with dependent children experienced difficulties combining paid work and family responsibilities with less support,” he said.

“The study also found that divorced men and women had a lower household income prior to separation than those who remained married and this has a bearing on their financial position in six years.

“While divorced men and women had lower assets before they separated than those who remained married, the gap appeared to widen at least in the first six years after divorce.

“There is some evidence that the effect of divorce on assets lasts into older age and this negatively impacts on income in later life. But the long term effects of divorce are largely offset by re-partnering.”

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Australian Institute of Family Studies Senior Research Fellow, Dr Lixia Qu said more Australians will experience divorce in the future and this has long-term financial implications for them and the Australian income support system.

“Divorce has a big impact on both men and women whose assets continue to fall behind married households and this impacts significantly on retirement income for divorced men and women who remained single, making them more reliant on government support to get by,” she said.

Joint researcher, Professor Matthew Gray of the Australian National University said while assets took a hit, most divorced women were able to recover their income position over six or seven years.

“This happens by a combination of increased employment rates, re-partnering and an increased level of government benefits. But many divorced women and men were left with a large and widening gap in their assets, compared to non-divorced contemporaries,” he said.

Professor David de Vaus of the University of Queensland explained that one of the factors behind this is likely to be that many divorced women and men missed out on the recent property boom, a period when many Australian households were able to build up considerable assets due to steadily rising house prices.

The joint research by the Australian National University, Queensland University and the Australian Institute of Family Studies drew on data from the Household, Income and Labour Dynamics in Australia Study involving nearly 7,700 households and 14,000 household members from 2001 to 2010.

The research found that:

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  • Households with married and never divorced men and women aged 55-64 years have annual equivalised incomes of between $50,000 and $55,000, compared to income of between $38,000 to $40,000 for households headed by a divorced single men and women of the same age.
  • Divorced single men and women have less household assets than married and never married counterparts both before and after divorce. However, the gap in household assets is much larger around six years after divorce ($360,000–$390,000) than before divorce ($180,000–$190,000).
  • Men and women experienced a decline in their subjective wellbeing after separation. While there was an overall recovery within the six years, men recovered less well than women.

The research will be presented at the 12th Australian Institute of Family Studies’ conference Family Transitions and Trajectories being held at the Melbourne Convention Centre from July 25-27.

Note: Equivalising household income adjusts household income to take account of the different needs of households of different size and composition. There are economic advantages associated with living with others, because household resources, especially housing, can be shared.

Source: Australian Institute of Families

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Date Created: July 25, 2012 Date Modified: December 20, 2012