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Paternal incarceration (PI) is recognised as a severely stigmatising event that undermines social connections leaving affected children isolated and vulnerable. However, few studies have explored social group membership as a potential mediator of positive outcomes. This paper analysed data from two national contexts, Scotland and the United States, to examine the potential for social group membership in childhood to mediate the association between PI and child behavioural and emotional outcomes. Study 1 reported on cross‐sectional data from the Growing Up in Scotland dataset of children aged 12 years. Study 2 used longitudinal data from the Fragile Families cohort study (USA) of children aged 9 years and then 15 years. Children and parents completed measures of PI, children's group membership, as well as positive functioning. In Study 1, a mediated indirect effect of PI on prosocial behaviour via children's group membership was observed. In Study 2, children's reported social group membership mediated the effect of PI on positive adolescent functioning longitudinally. Whilst experiences of PI at age 9 were linked with lower group membership at age 15, group membership was associated with higher levels of positive adolescent functioning. This has implications for the support families receive when a parent is incarcerated to avoid children serving sentences for 'the sins of their fathers'. [ABSTRACT FROM AUTHOR]