Divorce hurts retirement wealth, but not for single women

It's no secret that divorce is hazardous to your wealth. In most cases, it involves splitting marital assets in half, supporting two households rather than one and paying copious amounts of cash to attorneys to facilitate the dissolution.

That's why the chance of running out of assets in retirement is substantially higher for those who have been divorced than those who haven't. Net financial wealth in households that have never suffered through divorce is about 30 percent higher than in comparable households that have, according to a new study by the Center for Retirement Research (CRR). On average, divorce puts you at about a 5 percent greater risk of running out of assets, according to the study.

With one noteworthy exception: single women.

When it comes to retirement readiness, single women who were divorced are in just as good shape as those who never married -- bucking the trend for all other groups, including single men and married couples. The reason behind these surprising results: real estate.

"Divorce leaves single women with two offsetting things -- children, who are costly to raise, and the house, which provides a means for accumulating home equity," the CRR study said. If these women choose to tap that equity, a house can make all the difference to their financial security, said Geoffrey Sanzenbacher, one of the study's authors.

Ironically, financial planners have for decades been telling women going through divorce to dump the house.

There's no one-size-fits-all financial advice for divorcing women, said Avani Ramnani, director of financial planning and wealth management at Francis Financial, a New York planning firm. But more often than not, Ramnani said she counsels women to get rid of the marital home after she completes her analysis of the women's pre- and post-divorce finances.

"It's often a matter of how much money it takes to run the house, in addition to paying the mortgage," said Ramnani. "There are property taxes and, maybe, homeowners association fees, maintenance and landscaping, minor and major repairs."

If you can't afford to keep the house for at least five years, keeping it short-term just to ease the upheaval on the family is a major money mistake, added Ginita Wall, co-founder of the Women's Institute for Financial Education.

"The house is not the problem. It's what you have to sacrifice to keep the house," Wall said. "You may give up other assets, such as retirement accounts to keep an asset that's uncomfortably unaffordable."

Admittedly, women are often reluctant to take this advice, Wall acknowledged.

"I refer to the house as the marriage museum," she said. "It's often symbolic of good times. There are memories. ... There's a gravitas to the house that goes deeper than any logical justification you can come up with for it."

However, the very problems with affordability may be what makes the house a good retirement asset. After all, where you may not scrimp and save to add money to a retirement account, you're likely to cut out frills to pay your mortgage. And paying the mortgage builds equity, which can be tapped later in life to finance retirement.

"The house does have one singular advantage in that you can't live in a retirement account, but you can live in a house," Wall said. "And your payments reduce the mortgage, while the value of the house is likely to rise over time."

The one catch, said CRR's Sanzenbacher, is that few retirees are willing to tap their equity by downsizing or getting reverse mortgages -- even when they should to live better in retirement. So even though single women with a house are theoretically in a better position, they may not feel like it unless they finally break the tie to their real estate.

"It's a big asset, and our calculations assume that people will use it," Sanzenbacher said. "We think they should use it. But we know that not that many people do."