Although there is consistent evidence of the negative effects of parental divorce on children’s educational level, the mechanisms and the protective factors that explain the consequences of divorce on children have not been clearly determined. This information is required in order to create effective policies and programs to help children through the divorce process. This study uses the longitudinal data from the British Birth Cohort Study 1970 and structural equation models to test whether family income, maternal supervision, and children’s psychological problems mediate the effect of parental divorce on children’s educational level and to what extent these variables are important protective factors for children through the divorce process. The main aim of this study, however, is to test the importance of children’s psychological well-being on the relationship between parental divorce and children’s educational level. Only two studies noted the importance of children’s psychological well-being theoretically, but were unable to measure it. This study demonstrates empirically that children’s psychological well-being is not a negligible mechanism and that this variable represents a very important protective factor for children of divorce, since the effect of psychological problems on educational level is significantly greater for children from divorced families than for those from intact ones. Although most family policies aimed at divorced families are targeted to improving family income, these findings reveal the need for governments to ensure that all children of divorce have access to programs and interventions designed to improve their psychological well-being.