Post-split parents’ finances studied

19 Apr, 2018
 
Dr Michael Fletcher

The financial fallout of relationship failure hits women with children hard, with a 19% fall in their income after a break-up, according to new research from AUT.

The financial consequences of close to 16,000 parents who separated during 2009 were analysed by AUT Business School academic Dr Michael Fletcher in what is the first study of its type in New Zealand.

Using anonymised data Dr Fletcher was able to follow the economic fortunes of pairs of ex-partners up to three years after separation.

His analysis found in almost half of the separations the man gained financially, after taking into account the change in their family size, while their ex-partner was worse off. In a quarter of cases both were worse off.

“What typified that first group,” Dr Fletcher says, “is that they had a reasonably good income on average before the separation but most of it came from the man’s earnings. After separating, although the women increased their average earnings, this was not enough to offset the loss of the ex-partner’s income. They were also more likely to have care of the children than were the men.

“The group where both partners were worse off looks quite different. The women still lose because they no longer have the man’s income coming into the household but the men were also worse off on average because their average earnings fell significantly.”

In 11% of cases the women came out ahead, with the final 16% of couples both better off after splitting.

“When I focused on the group where both were at least 10% better off after adjusting for family size, what came through was first, that this group had a low average income before they separated and, second, that both the men and the women increased their earnings substantially in the year following the separation year.”

Relationship failure can have the effect of pushing many former couples and their children into poverty.

The research found the collapse of a relationship led to large increases in poverty among the studied group. Compared to a matched comparison group of similar people who did not separate, poverty rose 16.4 percentage points for the women and 8.8 percentage points for men. This impact lasted for the three years after separation.

Separation also has a significant impact on the average amount of benefit payments people received. The average amount of benefit support paid to the men post-breakup rose 44%, while the average for women increased 300%.

The increase in poverty rates, which will be reflected in the poverty rates for many of the children, and the absence of any improvement, on average, over the medium-term is particularly concerning, and the large increase in average welfare payments to women with children are a disturbing combination, Dr Fletcher says.

“They suggest that for a significant number, separation results in a movement onto welfare, especially among women, and that those who do move onto benefit do not find it easy to move off.

“A positive view of this is that the welfare system is serving a core welfare purpose of providing a safety net. The negative side is that it appears not to be preventing poverty, nor to be a short-term effect.”