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How getting divorced affects your income | Updated: 7:54:30 AM, Wednesday September 19, 2012
By Jen Storey How getting divorced affects your income

49 per cent of marriages fail, 50,200 divorces in 2010 alone. And new research has found that financial recovery can take as long, if not longer, than the emotional one.

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There are some harsh statistics out there. Forty-nine per cent of marriages fail, and up to sixty per cent of second marriages go the same way. In Australia in 2010, there were 50,200 divorces.

Recent research has found that the financial recovery takes as long, if not longer, than the emotional one.

The Australian Institute for Family Studies surveyed more than 7,000 households between 2001 and 2010 and discovered some interesting findings.

Financial recovery

The AIFS research found that post-divorce, the household income of divorced men did not decline to the same level as that of divorced women.

Significantly, it took six to seven years for the household income of women to reach the same levels prior to divorce.

The financial recovery of the divorced female was usually contributed to a mix of repartnering and, thus being a part of a two-income household again, as well as contributions from government payments, and increasing their personal work hours.

Government support payments tended to be used by divorced females in the immediate recovery period of the first three years post-divorce. They then tailored off as their work force participation increased.

However, if the divorced women also had children, the financial recovery took much, much longer.

Why the disparity?

The disparity between the financial situations of divorced men and women is attributed to work force participation.

If a divorced woman also has the primary caring role for children, it is likely that her work hours are not full time. It is well documented how difficult it can be for anyone seeking to find flexible work arrangements that will accommodate family responsibilities.

For divorced women with primary care of children, full time work may not be possible, or even economically viable. The income earned from full time work needs to cover the additional costs of childcare that may be required to enable her to do the work. With the rising costs of childcare, and scarcity of places, full time work may not be possible.

When a couple is intact, it’s easier to work out arrangements to care for the family. However, it gets harder for both parents when they are on their own.

Divorced men were found to be more likely to be able to continue to work and recover financially than women. Fewer men were working part time, either by choice or out of financial necessity.

Divorced versus non-divorced households income

Households with married, never-divorced couples aged 55-65 had annual incomes of between $50,000 and $55,000.

Households headed by a divorced person of the same age, whether they were male or female, earned only $38,000 to $40,000.

This disparity is attributed to the fact that within a married household, it is likely that one person works fulltime, the other part time. Within the divorced household, it is more often a sole income.

Impact on assets

During the period of the survey, Australia was experiencing a property boom. Couples who remained married during the survey period also amassed property and other investments.

Couples who divorced during that time, and those who have since sold their marital home as part of a property settlement, may be at a disadvantage. If the property was bought at the height of the boom, and subsequently sold in a softer market, little capital gain may have been made. Plus, there is also now no physical asset to form part of a longer-term wealth portfolio.

It may also be difficult for both divorced men and women to re-enter the property market as a sole income earner. Often, it is the joint income that makes paying off a home loan a viable option. Thus, both divorced men and women may be limited in the rebuilding of an asset portfolio.

The reduction in asset wealth can have long term effects, including having a flow-on affect onto a retirement plan.

More than assets

The survey also looked at the longer-term happiness of those who divorced. While it took divorced women significantly longer to recover financially, they tended to be happier than divorced men.

Immediately after separation, both genders experienced a decline in their subjective personal wellbeing – both grieve the loss of their marriage.

Yet six years later, female divorcees tended to be happier than their male counterparts. So, the divorced women may be earning less, but they were happier. Men, on the other hand, felt more isolated despite recovering financially.

What does this all mean?

That money isn’t everything. And that in divorce, ultimately, nobody wins.

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