Yours, Mine and Ours: Do Divorce Laws Affect the Intertemporal Behavior of Married Couples?

Abstract

Divorce laws establish spouses' individual property rights over household resources and determine when divorce is allowed. This paper examines how such laws influence the intertemporal behavior and the welfare of U.S. married couples. I build a model of household choice about consumption, labor supply and divorce under multiple divorce law regimes and I estimate it using exogenous variation in U.S. divorce laws from the 1970s to the 1990s. Couples responded to equal division of property and unilateral divorce by increasing tangible assets up to 19%, which suggests the presence of a strong income effect for the primary earner, and by reducing female employment by over 5 percentage points, because the threat of divorce granted additional bargaining power to married woman. The bargaining weight of women implied by these responses in the model corresponds to a third of the weight of men. This indicates that equal division of assets benefited women when it was first introduced, as they has such low weight in marriage decision. However, counterfactual experiments show that equal division may be potentially detrimental to women as they gain equality in their marriage. When men and women have the same bargaining weight, women are better off in a separate property regime, as they may need more assets than their husband to smooth consumption when going into a divorce.

Measuring and Changing Control: Women's Empowerment and Targeted Transfers

“…Some models assume cooperative behaviour between household members, while others allow for non‐cooperative behaviour and the waste of resources in the process of intra‐household allocation . A growing literature applies these models to study household decision‐making in a variety of specific contexts, such as the allocation of resources to children, labour supply, and fertility decisions (Hoddinott and Haddad, ; Chiappori et al ., ; Blundell et al ., ; Ashraf et al ., ; Voena, ).…”

Divorce Risk, Wages and Working Wives: A Quantitative Life-Cycle Analysis of Female Labour Force Participation

“…A recent article by Voena () builds on Mazzocco et al . 's framework to study how the introduction of unilateral divorce differentially affected the asset accumulation behaviour of married households and the labour supply of married women across US states with different property rights laws.…”

“…There is little guidance as to what the Pareto weight on a woman's welfare in the household allocation problem should be. A recent paper by Voena (), using variations in savings behaviour and divorce laws, estimates a value of 0.25. In our benchmark calibration, we set this value, χ , to 0.3; the robustness section investigates the effect of changing this weight and finds small effects…”

“… An alternative would be to assume that remarriage is to an agent with the same asset holdings as one's own, as in Voena (). Mazzocco et al .…”

Household financial planning strategies for managing longevity risk

“…Many consumption choice models assume that income risk is the only source of uncertainty (c.f., Abowd & Card, ; Low, Meghir, & Pistaferri, ; Low & Pistaferri, ). While income risk might be the most important source of consumption risk for young individuals, there are many postretirement risks that can affect intertemporal retirement consumption decisions, including the risk of future liquidity constraints, shocks to asset prices (including home values), risk of medical and other unexpected expenditures, and risk of family dissolution (see, e.g., Palumbo, ; Voena, ).…”