Divorce and Debt Holding: Heterogeneity by Parent Gender and Children’s Physical Custody Arrangements

• In Event: 20812 - Wealth, Debt, and Financialization

Abstract

Divorce typically constitutes an economic shock in the lives of couples, particularly those with young children. Yet, research has seldom examined the impact divorce has on debt holdings of men and women, and even less is known about the role of children’s post-separation living arrangements therein. This paper combines individual-level credit reports with court data on divorce cases in Wisconsin to study associations of divorce with debt holdings of mothers and fathers and variation therein by children’s physical custody arrangements—shared or mother-sole placement—using fixed effects and OLS regressions. Findings suggest debt levels start declining a year before divorce occurs but trend towards baseline levels by the second year following divorce for both parents. Trends reveal considerable heterogeneity in these trends by debt type, parent gender, and children’s custody arrangements - debt in asset-building categories trend towards recovery post-divorce while consumption-oriented debt falls throughout; although fathers typically hold more debt than mothers in most categories, a gender convergence occurs towards the end of the study period; and fathers in shared placement hold considerably larger amounts of debt (only) in asset-building categories than their mother-sole counterparts, although mothers do not significantly differ by placement in their any of their debt holdings. These findings support the ‘temporary crisis’ versus `chronic strain’ model of economic recovery after divorce and suggest that while asset-building debts may smoothen consumption over the economic shock of divorce, divorce may serve as a way to reduce the burden of consumption-oriented debt. Heterogeneity results by children’s living arrangements suggest that direct costs of having children in the house may be the mechanism through which debt outcomes differ for parents with shared versus mother-sole custody. Findings have implications for economic wellbeing and income support policies for post-separation households.

Authors

• Trisha Chanda, University of Wisconsin-Madison

• Alec Rhodes, Purdue University

• Lawrence M Berger, University of Wisconsin-Madison

• Rachel E. Dwyer, The Ohio State University

• Jason N. Houle, Dartmouth College