The findings from the latest AMP.NATSEM report – Divorce: For Richer, For Poorer, confirms that which most divorcees are already painfully aware - there is a significant erosion of savings and assets when a couple divorce.

Since 2002, AMP and the National Centre for Social and Economic Modelling (NATSEM) have produced a series of reports that open windows on Australian society, the way we live and work – and our financial and personal aspirations.

The latest report suggests it takes around five years for individuals to recover financially after parting ways.

Read full report here

I know several who have been through it (and perhaps not made the best decisions along the way) who suggest the report is wrong and it takes a lot longer than that! Some, particularly mothers, say they will never recover financially.

There seems to me to be a few common threads in how they handled their finances in the first few months after separation which may have made the difference, but we'll come back to that later.

 

National patterns of divorce

The rate at which Australians are getting married … and divorced has declined over the past two decades.  Still, around 100,000 people are bailing on their marriages every year.

• Nearly half of all divorces each year involve children and of those, 43 percent involve children aged 15 years and under 
• Australians are separating later in life, with the median age of men and women getting a divorce 45.3 and 42.7 respectively
• One in 3 marriages in Australia is likely to end in divorce
• A large number of divorcees go on to re-partner or remarry. For those who remarry, the negative financial impact of divorce is often reduced due to an increase in household income and shared expenses.

AMP Chief Customer Officer Paul Sainsbury said divorce has become a major financial shock for many Australians.

"Understandably, most couples don't plan for divorce," said Mr Sainsbury. "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.

"And with Australians now tending to divorce later during our mid-40s and prime wealth-accumulating years – the long-term financial impacts can be considerable."

 

Financial impact

• Divorced parents aged between 45-64 years of age have 25 percent fewer assets than their married counterparts.
• More than 20 percent of newly-divorced mothers are struggling to afford basic items including school uniforms and leisure activities.

 

Employment, income and super

• Divorce had little impact on the employment status and income of men 
• There was a 14% increase in the proportion of women returning to work, but their income was about 10% lower than women in the workforce who were married
• The average super balance of a divorced male was 28% less than the average married man, while super balances for divorced women were 75% less than those of married women.
• Super balances for divorced mothers are 68 per cent lower than married mothers.
• Divorced fathers aged 45-64 have around 60 per cent less superannuation than married fathers five years after a marriage breakdown.

 

Home ownership

• The AMP.NATSEM report found homeownership remained out of reach for many divorced parents. Five years after a marriage breakdown, 40 percent of divorced mothers and 32 percent of divorced fathers still live in rental accommodation.
• Overall, homeownership rates for divorced couples are also 15 per cent lower than married couples.
• Home ownership rates for divorcees with no dependent children dropped by 16% for women and 9% for men, largely through the sale of joint property
• It was thought that many couples chose to sell the family home, as keeping up with home loan repayments as well as renting a second place for the other party, is too difficult on one income.

 

Divorced mums are under the most financial stress

• There is a significant increase (14%) in the proportion of women returning to the workforce following divorce, however, their income is approximately 10 percent lower than married women.
• Meanwhile, divorce has little impact on the employment status of men. The income of a divorced father is 26 percent higher than the income of a matched married father.
• If families are under financial stress most of the household budget is spent on necessity goods. Newly divorced mums spend 66 percent of their household budget on basic necessity items such as groceries, clothing and utility bills. In contrast, married mothers and fathers spend 54 percent of their household budget on these items.
• 30 percent of divorced mums find the cost of childcare difficult despite their contribution towards the costs of childcare being 33 per cent less than divorced dads.

 

Planning at the crossroads - get yourself prepared

"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 Paul Sainsbury, spokesperson for AMP.

However, AMP.NATSEM report findings did show that being financially prepared for a divorce could shave a year off the five-year recovery period.

And so back to those people I know who are approaching or have reached the five-year mark, and don't look likely to recover financially ... there are a few common threads in the way these people handled their divorce which you might try to avoid:

• They put their head in the ground and ignored the necessary evil of addressing the dismantling of their financial partnership for way too long.  It is expensive to maintain a mortgage and run a separate household. When they eventually did get around to it, they found to their dismay there was now a lot less to share!
• They each engaged lawyers and aggressively pursued the other over matters which eventually turned out to be irrelevant in law.  The Court doesn't care who had an affair or who spent immaterial amounts of money on personal extravagances.  Nor do the lawyers but they are happy to keep writing letters to the other side at a handsome fee to ask for explanations of these matters which, granted, are upsetting, irritating and 'feel' like they should be relevant ... but just aren't.  The fees mount up and in the vast majority of cases, there is absolutely no return on your investment.
• They made decisions about finances with their heart and not their head.  

Did I make any of these mistakes?  

You bet I did!  

That's why I designed The Split Kit - Simple, Secure, Affordable divorce organiser software.

             

and wrote The First Steps through Separation and Divorce to help other couples to avoid my errors.

   

 

Read more about how to protect and prepare yourself and your family when you separate:

What’s included as property?

How is Superannuation treated in divorce?

What happens to the family business?

Stamp Duties and Tax Liabilities when you separate

 

Published by, Christine Weston
www.DivorceResource.com.au