The Gender Wealth Gap

Apr 1, 2021 | Finances, Prenuptial Agreements, Second Marriages, Uncategorized

Women’s median earnings are less than men’s, no matter the occupation. Women also earn less than men in every country. It sounds pretty bleak when put that simply, right? We often talk openly about the gender pay gap – but we rarely discuss the gender wealth gap, which, arguably, is far more important.

The gender pay gap is the amount of money that women earn in comparison to men, cents on the dollar. The gender wealth gap on the other hand, calculates how much money women have versus how much money men have. This is important because it factors in how much wealth is lost by women over periods of time when they have children, step back from work to raise their children, or simply due the fact that they are earning less on every dollar than men, and therefore are accumulating fewer assets over the long haul.

There is less precise data available for the gender wealth gap, but for every dollar a man owns, women own about 32 cents[i].

It is likely that the gender pay gap gets more attention because it is easier to digest. The wealth gap on the other hand must factor in many more variables and encompasses a broader period of time. Wealth is of course, cumulative.

First, let’s talk about the gender pay gap.

The occupations with the worst gender earnings ratios are some of the highest paid. For example, Medical Scientists have an earnings ratio of just 65.2 percent on every dollar a man earns. Out of the top ten occupations with the largest, or in our words, most egregious gender wage gaps, two out of those ten have higher than median earnings for all full time workers[ii].

Overall, the gender pay gap for women on every dollar earned by a man, breaks down as follows[iii]:

  • Asian women: 86 cents on every dollar
  • White women: 75 cents on every dollar
  • Black women: 61 cents on every dollar
  • Indigenous women: 58 cents on every dollar
  • Latinx women: 52 cents on every dollar

The most common way of discussing the gender pay gap is in terms of cents, and may inadvertently obscure the true impact on working women over time. A woman working full time earned $19,329 less than a man in her same position in 2018, on average, across White, Black, Asian and Latinx women. If this pay gap were to remain unchanged throughout her career, this woman would earn $773,224 less than a man in the same job over a 40 year career[iv].

Women experience more career interruptions.

It is a fact of life that women have babies. Women also take more career breaks than men due to the physical impact these major life changes have, along with the parenting responsibilities that follow. Although many employers have begun to enact policies for paid parental leave, one reality persists: Women are often the ones compromising and adjusting their schedules when conflicts arise with work, according to a Pew Research Center survey[v].

According to the survey, mothers were far more likely than fathers to report “significant career interruptions” due to their family’s needs. This survey was conducted in 2013, when women represented almost half of the US workforce, but still devoted almost double the amount of time to unpaid work, like housework and childcare on average.

Fast forward to 2020.

During the year of 2020, nearly 2 million women left the workforce. More specifically,  according to the National Women’s Law Center, around 1.1 million Americans left the workforce in September of 2020 alone, and 865,000 of those workers were women. Today, women’s labor force participation is at the lowest levels it has been since 1986. Let that sink in[vi].

Why “Leaning In” is not the answer.

Sheryl Sandberg had it wrong when she suggested that if women were to ‘lean in’ more, they would have more opportunity in the workplace. Society has not evolved in a way that supports women since they entered the workforce in large numbers. No systems have been instituted to help women juggle the caretaking duties that society views traditionally as being “a woman’s job.” When women first entered the workforce, it was typically within factory walls for very little pay, and it was not until the Progressive Era when women eventually moved into office jobs, predominantly in administrative roles. After the women’s labor movements in the 1960’s and 70’s, women began to work their way into more prestigious positions where they earned better salaries, and became less dependent on their male counterparts. In fact, it wasn’t until the Equal Credit Act of 1974 that credit card companies were prohibited from “discrimination on the basis of race, color, religion, national origin, sex, marital status, or age in credit transactions.” Before the Act, women often faced obstacles in getting credit cards or loans without their husband. 1974 was not very long ago!

As of 2018 women only made up 5% of Fortune 500’s list of CEOs. Is it because women aren’t ‘leaning in’ enough? First Lady Michelle Obama seemed to get it right when she said “…it’s not always enough to lean in, because that shit doesn’t work all the time.”

The Motherhood Bias

The pandemic has revealed the cracks in how our society operates. Women have borne the brunt of housework and childcare for a long time, all while trying to build successful businesses and careers. Women’s lack of advancement in the workplace is not due to some failure to negotiate their salaries, lean into leadership positions, or some generalized sexism, but rather the motherhood bias.

Many studies show that immediately after having a child, the pay gap between spouses doubles. Women who choose to have children between the ages of 25 to 35, prime child bearing years as well as prime career building years, are most at risk of the widening wealth gap. Many studies showed that when women have children during these years, their pay never recovers and the wealth gap continues to widen, despite the fact that their husband’s wages continue to rise[vii].

What does the wealth gap have to do with a prenuptial agreement?

Alimony is a good example.

Massachusetts is a simple example of the direction alimony is heading in all over the country, and why arrangements like this are not always advantageous for women. This is especially true after how many women have been forced to leave their jobs in the last year due to the pandemic. In 2012, Massachusetts enacted the Alimony Reform Act that changed how alimony in Massachusetts would be granted.

Massachusetts alimony guidelines, simply put, are based on the length of the marriage and the amount of the earning spouse’s income. The simple calculation takes into account how long the couple has been married, which, although important, does not take into account the unpaid contributions of the unearning spouse. Alimony terminates at full social security retirement age. So, if a marriage lasted fifteen years, and a woman stopped working to care for children during her prime years of earning potential and career building, she would receive alimony for about 10 years at most. Certainly, this system is well suited for a shorter term marriage where not as much sacrifice has been made. A theoretical two year break from the workforce to raise children is far less detrimental than a ten or fifteen year break.

Now, one could make the argument that alimony has been gender neutral since the 1970s, and therefore men, too, could be the recipients. But the reality persists- as of 2014, 97% of alimony recipients were women, for all of the reasons stated in this article.

So, again you ask, how does alimony relate to a prenup? Isn’t a prenup generally bad for the lower earning spouse? That may be the perception, but it is far from reality. A prenuptial agreement allows couples to contract around their state’s divorce laws. This means that although, yes, a prenuptial agreement can deprive a party of rights that they would otherwise receive under the state law had they not entered into a prenuptial agreement, but it also means the opposite. Want to create your own financial arrangement that is more fair for you or your spouse if you both agree that spouse may need to stay home and raise the children at some point? You can do that!

Let’s look at an example: Sarah and Matt get married around the age of 30, as most millennials do. They both have careers they are happy with and have been ambitiously pursuing for the past 8 or so years. For the sake of this argument, let’s use the typical scenario where although Sarah is as successful as Matt, her salary is slightly lower.

Sarah gives birth to their first child. Sarah and Matt quickly realize how difficult it is to work and care for a baby, and how expensive childcare is in their home state of Massachusetts. The couple decides that, although Sarah loves her career, because she earns less money, she will work part time for a few years. Part time turns into being a stay-at-home mom, just for a few years. Sarah plans to return to her career as soon as her kids are settled in school.

After 10 years of marriage, and 9 years of Sarah being a stay-at-home mom, Sarah and Matt divorce.

Under Massachusetts’ law, Sarah may be eligible to receive alimony (this is separate from child support, but we are simplifying this) for approximately 6 years. Will Sarah recoup the years of lost earning capacity in the next 6? She probably won’t. Meanwhile, Matt’s income has increased every year, he has become a leader in his field, and his earning potential will continue to increase long after he and Sarah have divorced.

What would have been different if Sarah and Matt had a prenuptial agreement? Well, for one, they could have decided different terms for alimony. They could have also decided that if the couple was married a certain number of years, and one of the spouses stayed home with the children, that spouse would be compensated for that time in the event of a divorce. The couple could have decided that should they divorce in the future, and one of the parties decided to be a stay-at-home parent, that spouse would instead get more assets to make things feel more equitable. The point is, a prenuptial agreement can provide for many different arrangements that can make things feel more fair.

The prenup building process has been made simple by using the HelloPrenup platform. Why not begin your life together feeling confident that you are both on the same page?

Interested in learning more about a prenup? Read our FAQ section here, and watch our informational videos here.

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[i] https://womenswealthgap.org/wp-content/uploads/2017/06/Closing-the-Womens-Wealth-Gap-Report-Jan2017.pdf

[ii] https://iwpr.org/wp-content/uploads/2021/03/2021-Occupational-Wage-Gap-Brief-v2.pdf

[iii] iwpr.com

[iv] https://www.americanprogress.org/issues/women/reports/2020/03/24/482141/quick-facts-gender-wage-gap/

[v] https://www.pewresearch.org/social-trends/2013/12/11/on-pay-gap-millennial-women-near-parity-for-now/#the-balancing-act

[vi] https://nwlc.org/resources/four-times-more-women-than-men-dropped-out-of-the-labor-force-in-september/

[vii] https://ideas.repec.org/p/cen/wpaper/17-68.html

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