As noted in this article from CBS News, a recent study determined that divorce puts the average individual at about a 5 percent greater risk of running out of assets, and that those who have never been divorced have 30 percent higher wealth than those who have been divorced.
The study notes, however, one exception: single women have as much retirement readiness whether never married or divorced, and the reason has to do with real estate.
An individual can accumulate retirement equity in three principal ways – traditional savings, pension or retirement accounts or similar investments, and real estate. The traditional savings provide consistent but minimal growth because of low interest rates (a trend that may be ending now). Retirement accounts can provide an excellent rate of return, but do fluctuate and carry greater risk (think 2007). But real estate generally accumulates equity at a high rate because of the combination of paying off the mortgage over time and the fact that property values tend to increase at well above the rate of inflation.
The study concludes that for some women, keeping the house after a divorce enables them to build wealth at a greater rate than if they had to build retirement back up with a smaller share than at the time of the marriage. Of course, this strategy falls apart if the individual woman cannot really afford the house and must deplete other assets, like savings or retirement, in order to keep the house.
But if the house is affordable, apparently maintaining it induces single women to become better budgeters, reducing “frills” and planning more carefully. In this way, come retirement, the single woman now has a home nearly paid off and filled with equity – what the article calls the retirement asset you can live in. And it is true – the single woman can continue to reside in a home with minimal maintenance costs and leverage the equity when necessary to pay for other needs.
In the end, whether a woman should keep the house as part of a divorce settlement is a very individualized decision that turns on that person’s earning capacity, age, health and future goals – something that person should discuss with her attorney and financial advisor.
If you have questions about real estate and divorce, contact us – we can help.