DIVORCE CONSENSUS: Recovering Economy Increasing Population of Splitsville

February 25, 2014

Tough economic times are often associated with visible impacts like spending less on discretionary items such as entertainment, shopping for clothes, and keeping more savings in the bank. It is also interestingly a time where people in strained relationships instead of cutting the chord, choose to stay in those troubled relationships out of economic necessity.

At the depths of the financial crisis, especially in 2009, divorces were at a 40-year low, according to Jessamyn Schaller, an economics professor at the University of Arizona, in Tuscon. Citing data from the U.S. Government’s National Centre of Health Statistics. After doubling between 1940 and 1981, the divorce rate fell by a third in 2009.

Since 2009, the trend has turned as the number of Americans getting divorced rose for the third year in a row to about 2.4 million in 2012 according to U.S. Census Bureau data. In times of financial constraint, getting a divorce may be the last step to being on the street for one or both parties, so it is just simply economically more viable to suck it up and make a go of it until one or both parties feel more financially secure to move to Splitsville.

Sadly, divorce is good for economic growth because it results in the creation of new households, which can stimulate the demand for housing especially rentals as well as housing products like appliances and furniture. It also forces more women to enter the labour force.

“As the economy normalizes, so too do family dynamics,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Birth rates and divorce rates are rising. We may even see them rise strongly in the next couple of years, as households who put off these life-changing events decide to act.”

Both marriages and dissolutions are tied to unemployment, University of Arizona’s Schaller found in a May 2012 paper. Each one percentage point increase in the jobless rate is associated with a 1.5 percent decrease in the marriage rate and 1.7 percent drop in the divorce rate, she calculated. Is it no coincidence then that the unemployment rate hase been trending down since 2009 to its current level of 6.6 percent from 10 percent in 2009?

Rising stock prices and subsequent increases in net worth may also be a trigger in the rising divorce rate. Rising stock and home prices are giving couples greater financial security. Household net worth for the third quarter last year was more than $8 trillion above its pre-recession peak of $69 trillion reached in same period in 2007, data from the Federal Reserve showed in December.

“…Attorney Sandra Bonfiglio saw her family law practice in Fort Lauderdale, Florida, rebound last year close to 2009 levels after dropping 20 percent in 2010 near the worst of the state’s housing crisis, she said. When the real estate bubble popped, “people did not have enough money to litigate,” she said. Breakups had been complicated because couples jointly owned homes with loans that exceed their value, she said…”

We had a hard time trying to figure out where to slot this observation. We ended up putting it in the Positive Consensus column because the data shows that from an economic perspective, divorce appears to be a product of a strong economy despite the negative social consequences it causes for the families impacted. The question is then whether this trend is still on the upswing or has it peaked because everyone who has put off splitting up, has done so by now.