The economic consequences of divorce in six OECD countries

Research Report No. 31 – March 2015

Executive summary

Divorce is a key life course risk that typically has significant economic consequences, as well as possible negative effects on health and wellbeing. In OECD countries, institutional arrangements have been established to help manage the consequences of divorce and reduce its economic effects. These include family law measures, child support (maintenance), spousal maintenance (alimony) and the social security system.

It has been demonstrated that estimates of the economic effects of divorce based on cross-sectional data can be quite misleading, and that longitudinal data that track people pre- to post-divorce are needed to obtain accurate estimates of the economic effects of divorce. Longitudinal estimates for some countries have consistently found that divorce has negative economic consequences, particularly for women. Nevertheless, having comparable estimates for a range of countries of the economic effects of divorce and the extent to which these effects change in the years following divorce is important to assist in the evaluation and further development of policies to alleviate the consequences of divorce.

This paper uses longitudinal data to estimate the short- and medium-term economic effects of divorce in the USA, the UK, Switzerland, Korea, Germany and Australia during the first decade of the 21st century. While the data, collected during the 2000s, were generally consistent with the findings from the existing literature, they reveal that the effects of divorce differ between the six countries included in this study.

In all of the countries studied, divorce had, on average, negative effects on the equivalised household incomes of women. However, the extent and duration of the negative effects of divorce differed markedly between countries:

  • In the USA and Korea, divorce had a substantial negative effect on women's equivalised household incomes in the short term, and there was no evidence of recovery over the medium term.
  • In the UK, Germany, Australia and Switzerland, divorce had a substantial short-term negative effect, although smaller than that experienced by women in Korea and the USA. In the UK, Germany and Australia, women's incomes started to recover, but their incomes were still substantially lower six years after divorce than they would have been had they remained married.
  • In Switzerland, women's income recovered very quickly to what we estimated it would have been had they remained married.

In all of the study countries, the effects of divorce on the equivalised household income of men were smaller than the effects on women in terms of post-separation income relative to pre-separation income and the income it would have been had they remained married.

Although, using the available data, it is not possible to definitely explain the differences between countries, the analysis presented in this paper provides some insights:

  • The role played by government benefits differs between countries. In the UK, Germany and Australia, government benefits are very important in reducing the effects of divorce on women's equivalised household incomes. In the USA, Switzerland and Korea, government benefits play a far smaller role in offsetting the negative effect of divorce on women's post-divorce incomes.
  • The effects of divorce on income vary with different institutional settings and labour markets. For example, the economic consequences of divorce for women in Switzerland are much smaller because of a combination of higher labour market earnings for women in Switzerland and a greater contribution from a new partner's income.
  • Re-partnering rates and contributions from a partner's income to post-divorce household income vary substantially across the study countries. In Germany and the USA, partner income makes a relatively small contribution to women's post-divorce household income, while it is much more significant in Switzerland and Australia, and to a lesser extent in the UK and Korea.

This study has demonstrated that the average economic effects of divorce, particularly for women, are heavily influenced by the social security system, labour market, family models and the family law system of each country. While the social security system and institutional arrangements such as child support and spousal maintenance do influence women's post-divorce economic outcomes, what is most important in explaining cross-country differences is women's labour market earnings and the extent to which re-partnering occurs.