The Economic Consequences of Divorce in Australia

Abstract

Divorce has become a key life-course risk that can have significant economic impacts. This article uses a new Australian data source that follows families over a 10-year period to estimate the impact of divorce on income and assets. There have been few longitudinal studies of the impact of divorce on assets and relatively few such studies of its impact on income. The article finds that divorce has a substantial negative impact upon the household income of women in the short term, but by 6 years after divorce income had largely recovered to what it would have been had they remained married. In contrast, men who divorce experience a substantially faster rate of increase in income post-divorce than had they remain married. The analysis of asset data reveals that while the gap between the value of assets of the divorced and non-divorced grows post-divorce, it appears that the growing disparity in assets largely reflects pre-divorce differences in assets. The results in this article clearly demonstrate the critical importance of using longitudinal data to estimate the economic and labour market consequences of divorce. While the economic effects of divorce on Australian women appear to be, on average, relatively short-run, the Australian social security system plays a crucial role in protecting the incomes of women post-divorce, particularly those with children.