Children’s Living Arrangements and Parental Debt after Divorce

• In Event: Impacts of Child Support Policies and Payments on Wellbeing of Children and Parents

Abstract

Divorce represents a substantial economic shock for families, with consequences that extend beyond income to shape households’ financial portfolios. While prior research has documented the effects of divorce on earnings, poverty, and assets, comparatively little is known about how post-divorce debt holdings evolve – particularly in relation to children’s living arrangements. This study examines how consumer debt outcomes differ by physical custody arrangements following divorce, focusing on within-gender comparisons between parents with shared custody and mother-sole custody. By centering both mothers and fathers, this study contributes to a more complete understanding of how post-divorce household structure shapes financial behavior.

Custody arrangements influence both the allocation of child-related expenses and the flow of resources between households, primarily through cost-sharing and child support. In mother-sole custody arrangements, mothers typically bear a greater share of direct child-related costs but receive higher child support, whereas shared custody involves more equal cost-sharing but lesser transfers. These differences may shape both the need for and capacity to take on debt. Selection into custody arrangements is non-random: shared custody parents tend to have higher pre-divorce socioeconomic status and stronger labor market attachment. Understanding how these mechanisms may translate into debt patterns requires longitudinal data spanning pre- and post-divorce periods.

We use linked administrative and proprietary data from Wisconsin, combining court records on divorce cases with individual-level monthly credit bureau data and administrative records on income and program participation. Our sample includes 1,834 divorcing parents with minor children filing for divorce between 2017-2019. We construct measures of debt incidence and balances across mortgage, auto, and credit card debt, as well as indicators of delinquency. Custody arrangements are defined using detailed court records on overnight child placement.

To isolate associations between custody arrangements and post-divorce debt, we estimate a sequence of nested, gender-stratified OLS models that compare individuals in shared versus mother-sole custody arrangements for each of the two years following divorce. These models successively control for baseline (pre-divorce) earnings, employment, and debt levels, demographic characteristics, and child support payment/receipt.

Our findings reveal striking gender asymmetries in debt following divorce. Among mothers, we find no significant differences in debt incidence or balances by custody arrangements in the two years following divorce. In contrast, fathers in shared custody are significantly more likely to hold debt – particularly asset-building debt such as mortgages and auto loans – and to carry higher debt balances, compared to fathers in mother-sole custody arrangements. These differences persist after accounting for child support payments and compliance rates. Nevertheless, we find no evidence of variation in delinquency rates by custody type for either gender, indicating that higher debt levels among shared custody fathers do not translate into greater repayment difficulties.These findings suggest that custody arrangements may primarily influence debt through differences in direct expenditures associated with children residing in the household, rather than through financial distress. They highlight the central role of household composition and child-related costs in shaping post-divorce financial behavior and underscore the importance of considering both gender and family structure in analyses of household finance.

Author

• Trisha Chanda, The Ohio State University
  Presenting Author