Counting the Economic Costs of Divorce

photo credit: 401K

The institution of marriage, as traditionally defined between one man and one woman, is the bedrock of society. Before there can be a government or an economy, there is first the family. It is within the family that children learn the social virtues that made America the envy of the world.

Unfortunately, the last few decades have not been kind to the family. The starting point of this decline in the institution of marriage was the adoption of no-fault divorce. Now, decades later, we can begin to assess the damage to society. In particular, the economic costs.

A few years ago, a pathbreaking study was released that made the first attempt at quantifying the economic costs of divorce titled: “The Taxpayer Costs of Divorce and Unwed Childbearing” The study found:

Why should legislators and policymakers care about marriage? Public debate on marriage in this country has focused on the “social costs” of family fragmentation (that is, divorce and unwed childbearing), and research suggests that these are indeed extensive. But marriage is more than a moral or social institution; it is also an economic one, a generator of social and human capital, especially when it comes to children.

Research on family structure suggests a variety of mechanisms, or processes, through which marriage may reduce the need for costly social programs. In this study, we adopt the simplifying and extremely cautious assumption that all of the taxpayer costs of divorce and unmarried childbearing stem from the effects that family fragmentation has on poverty, a causal mechanism that is well-accepted and has been reasonably well-quantified in the literature.

Based on the methodology, we estimate that family fragmentation costs U.S. taxpayers at least $112 billion each and every year, or more than $1 trillion each decade.

More specifically, New Hampshire’s share of this burden comes to $99 million per year.

Additionally, it’s not just the negative impact on children that make divorce such an economic disaster. As America ages, the need to create a nest egg is more important than ever. Yet, a recent article from the Wall Street Journal titled “When Divorce Unravels Your Retirement Plans” highlights the dangers of divorce as one approaches the golden years:

Whatever its other benefits, divorcing later in life is one of the worst financial moves you can make.

“The quickest way to cut your assets in half is to get a divorce,” says Renee Hanson, a wealth adviser with Ameriprise Financial in Phoenix. She has seen a number of clients, including Ms. Ward, divorce during—or close to—retirement, and says that it is critical for a couple to understand the financial consequences before they untie the knot.

For starters, both parties in a divorce are likely to face a drop in their living standard. But women tend to fare worse, says Karen C. Altfest, executive vice president at Altfest Personal Wealth Management in New York. On average, they work fewer years than men since they are more likely to take time off to raise the children. This means they haven’t built up as many assets and therefore have less negotiating power.

If divorce wrecks a couple’s ability to privately fund their retirement, that means government safety-net programs such as Social Security, Medicare and Medicaid will have a greater load to bear . . . programs that are already insolvent with America’s total debt burden estimated to be over $77 trillion.

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