Female-headedness is on the increase. While being a traditionally male-dominated society, almost every second household in the towns of Eritrea is now headed by a woman. The main reason for this development is a surplus of women due to male labour migration, the death predominantly of male breadwinners during 30 years of liberation war, an increasing number of divorces in a post-war society, as well as lack of employment opportunities for female household heads rural areas. Female-headed households in general are not more often poor than male-headed ones, but there are large variations of income within the group. Two roads to poverty are identified; one is the failure of compensating the lack of a husband by including other adults and form extended families. The other is through divorce, which seems to imply social exclusion or at least absence of financial support from relatives. Hence, young widows and divorced women with children, and who have no other adult household members, are identified as the poorest groups in urban areas. The dominant income source for female household heads is transfers from relatives. However, for those who do not receive such income, especially divorced women, the labour market is the key to improved living conditions in a society without any form of public social assistance. This analysis indicates that education is the key to raising returns to labour, both in wage jobs and as self-employed. Lack of education, childcare responsibilities and lack of autonomy seem to be the most important factors keeping women outside the formal labour market.