The costs of divorce are notoriously high, but the Alliance & Leicester Borrowing Monitor shows how separation and divorce affect people's financial health for many years to come. It also highlights sharp contrasts in financial fortune according to marital status.
Divorcees suffer heaviest debt burden of all
Divorced people are far less comfortable with their debt than those who are separated and who have never married. The biggest contrast however is between the married couples who are still together and those who have divorced.
Divorced people owe just under £5,000 on average - (£4,984) each - not counting any mortgage. This is equivalent to 28 per cent of their annual incomes.
Married people owe £5,245 between them - or £2,600 each. More importantly, however married couples enjoy a much higher incomes, so their debt is equivalent to less than a sixth (15.9 per cent) of their annual income. Divorced people pay a higher proportion of their incomes servicing their debt than any other group. They also have lower incomes and overall their financial position is far less comfortable.
Divorcees tend to be older - 54 on average - and as such are nearer retirement than these other groups. Carrying a high debt burden at this late stage in working life leaves them much more vulnerable. Divorcees are also twice as likely to be unemployed than their married counterparts - 4 per cent compared to 2 per cent.
People who are separated owe 25 per cent more than divorcees (£6,262 compared to £4,984) but they have higher incomes and so it costs them a smaller proportion of their incomes to pay the interest (4 per cent compared to 4.2 per cent). Interestingly, separated people are on average 14 years younger than the divorced, so have more time to pay it off. Single people owe £5,299 - but half this amount is student debt and so is very cheap to finance and therefore need not be considered in the same way. Singles are also the youngest group and have many more years of higher earning power ahead of them.
Divorcees rely far more on personal loans and credit cards
Divorcees have the largest personal loans of any group, £2,789 per person on average, more than the total for a married couple (£2,259, equivalent to £1,130 each). Divorcees' average credit card balances are only a little less than a married couple's (£1,550 for one versus £1,885 for two). Furthermore, when we consider only those who don't pay off their balance each month, divorcees owe £4,028 on average, compared to £5,238 for the couple. This means that out of their lower incomes, divorcees need to find £664 per year on average to pay the interest on their credit cards compared to £864 for the married couple. Separated people owe even more on credit cards, as the early costs of separation are often high street consumer expenditure involved in setting up a new home. Longer term financial arrangements come later.
Chris Rhodes, managing director of Alliance & Leicester Retail Banking, said: "Splitting up clearly gives rise to a lot of costs, including setting up a new home. This is reflected in the fact that the recently separated have the highest overall level of debt at £6,262. However, over the years, divorced people's finances do not seem to improve - showing how long-lived the effects of relationship breakdown can be."
Divorcees have fewer assets - less in savings and fewer own their own home
Nearly half (44 per cent) of divorcees have no savings at all. This compares to 27 per cent of married couples and a national average of 32 per cent. Those who class themselves as separated are even less likely to have savings, perhaps because they have more recently incurred the costs of setting up a new home. Alliance & Leicester's research shows however, that far from improving, their situation is likely to deteriorate over time. While the overall amount owed may fall slightly, divorcees are carrying this burden towards retirement.
They are also much less likely to have the financial security that comes from owning your own home. 82 per cent of married couples own their own home, compared to just 61 per cent of divorcees. Following divorce, it seems that a large proportion of divorcees never get back on the housing ladder. Indeed, divorcees are much more likely than any other group to live in social housing (24 per cent compared to the national average 14 per cent).
Rhodes concluded: "Divorce is financially as well as emotionally costly. Our research shows how severe these financial effects are. The majority of divorcees in our sample are over 50. They have fewer assets in terms of savings or owning their own homes. Being in poorer financial shape at this age than their married counterparts will have clear knock-on effects into retirement."
