8 July 2009

The long lasting financial impacts of divorce for women

A new, long lens study of the financial impact of divorce on women and men has found that four years later, divorced women are still significantly worse off than both divorced men, and women who never divorced.

The Australian Institute of Family Studies has analysed data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, which has collected information from thousands of Australian households every year since 2001.

The Institute’s Deputy Director, Dr Matthew Gray, said the paper found that divorce had lasting impacts on women’s income levels (income adjusted for changes in household size following divorce), and the degree of hardship they experienced.

“The study shows that divorce has a substantial negative impact on the incomes of women, and almost no impact on the incomes of men after adjusting for changes in household size”, Dr Gray said.

“While this has been established in other studies, our study looks beyond income levels, and over a seven year period compares divorced women not just to men but to other women, in order to get a better picture of the long term financial impacts of divorce.

“The findings paint a bleak picture of the financial cost of divorce to women and their children.

“But what is also clear from the study is that there are several important factors that will reduce the likelihood of increased financial hardship and prosperity after divorce.

“For women, higher pre-divorce income, being in paid employment, control over financial decisions pre-divorce, and stability of income are important factors in mitigating the negative financial impact of divorce,” Dr Gray said.

Income

In the year immediately after divorce, women’s income declined while men’s stayed the same (after adjusting for changes in household size). While women’s income recovers over time, compared to the incomes of non-divorced women, they are still significantly behind.

Four years after divorce, women experienced a 2.9% increase in income from pre-divorce levels compared to an increase of 12.3% for non-divorced women. For divorced men, income increased by 12.5%.

“This finding is quite profound for divorced women, who, four years after divorce, are just managing to catch up to their pre divorce income levels.”

Hardship

The study also looked at measures of hardship, such as being unable to pay the rent or mortgage, going without meals and home heating, or seeking assistance from a charity.

“Divorce greatly increases the likelihood of such hardships for women, particularly women with children. For men, hardship increases only slightly and then declines to be substantially lower than it was pre-divorce.”

The study asks if, since the previous interview, any of the following happened because of a shortage of money:

In the first year after divorce, the percentages of men and women experiencing at least one or more of these hardships was:

This compares to 19.7% for women who had not divorced.

While all groups experienced fewer hardships over time, divorcing women experienced the least improvement - less than half of that for all men and non-divorcing women.

Four years after the year of divorce, 43.2% of divorced women were still experiencing one or more of these hardships, compared to 36.1% of divorced men and 18.1% of not divorced women.

Perceptions of prosperity

The study then went on to ask people how they perceived their own prosperity.

“What stood out here is that divorced men were more likely than divorced women to say they were poor or very poor. This is despite the fact that divorced men had higher incomes than divorced women and were less likely to experience financial hardships,” Dr Gray said.

Two years after divorce, of the men earning at least $4,000 per year more than they had pre-divorce, 22% said they were worse off (compared to 14.3% for women).  For men in this category, 80% had no increase in the number of hardships experienced.

 

Conference paper: The effect of relationship breakdown on income and social exclusion (PDF 2.0 MB).

 

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