It Takes 5 Years To Recover Financially From Divorce

AMP.NATSEM report finds that takes five years for divorced couples to recover their financial position following separation

Divorce doesn’t just cost money in terms of lawyer’s fees: a new AMP.NATSEM report finds that on average it takes five years for divorced couples to recover their financial position following separation – and for some it may never happen, with home ownership simply out of reach for some divorced parents.

“A marriage breakdown is devastating for your finances in the near term and its impact can continue into old age and have serious consequences for financial living standards and retirement prospects later in life,” said AMP Chief Customer Officer Paul Sainsbury.

“Understandably, most couples don’t plan for divorce. This lack of planning, combined with the significant disruption and emotional distress of a divorce, often means finances are a lower priority and mishandled during a separation.”

Separate research has found that money itself can be a significant cause of disagreement between couples in the first place.

The AMP.NATSEM report found:

cost of divorce Divorced parents aged between 45-64 years of age have 25 per cent less assets than their married counterparts.
cost of divorce Super balances for divorced mothers are 68 per cent lower than married mothers while on average a divorced mother has 37 per cent less super than a divorced father.
cost of divorce Divorced fathers aged between 45-64 still have 60 per cent less superannuation than married fathers five years after a marriage breakdown.
cost of divorce More than 20 per cent of newly-divorced mothers are struggling to afford basic items including school uniforms and leisure activities.

More than half (57 per cent) of all divorces involve couples who do not have a dependent child aged less than 16 years living with them and while there are significant short and medium-term financial impacts, the AMP.NATSEM research found that their longer-term financial outcome is better than divorcing couples who do have dependent children.

Home ownership rates of divorced couples with dependent children reaches, on average, 61% of divorced fathers and 57% of divorced mothers five years post-divorce. This compares to 85% of married (non-divorced) couples with children and just under 70% of divorced males and females without dependent children.

Lower home ownership levels are not surprising, with the report finding that those who divorce spend a higher proportion of household income on necessities such as food, clothing and heating.

Beyond home ownership, divorce can also impact on comfort in retirement, with superannuation balances usually being split when partners permanently separate.

Couples Divorced 1 – 4 years Divorced > 5 years
Male Female Male Female Male Female
With no dependent children $128,641 $136,825 $82,200 $85,567 $132,028 $132,338
With dependent children $86,109 $87,103 $134,725 $63,767 $135,845 $77,632

Source: NATSEM calculations from HILDA data wave 14 (2014).

The report makes sobering reading; Mr Sainsbury encourages all Australians to keep on top of their money issues.

“Being financially independent and actively engaged with your finances and planning ahead for financial challenges such as divorce can go a long way towards reducing its harmful effects,” he said.

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