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

Divorce laws regulate when divorce is allowed and establish each spouse's property rights over household assets. This paper examines how such laws affect the intertemporal behavior and the welfare of married couples. I build a dynamic model of household choice in which moving from a mutual consent to a unilateral divorce regime results in limited commitment and renegotiation of intra-household allocations. I estimate the key parameters of the model by exploiting panel variation in U.S. divorce laws across states from the late 1960s to the 1990s. In states that imposed an equal division of property, couples responded to unilateral divorce by increasing savings about 20% more than in states in which assets were retained by the spouse who had formal title to the property, suggesting that equal division may have been costly for primary earners. Furthermore, wives responded to unilateral divorce by temporarily reducing their employment by more than 5 percentage points, only in states in which the division of property was equal. These findings indicate that the threat of unilateral divorce and the leverage provided by the equal division of property allowed wives to appropriate a larger share of household resources (consumption and leisure). My estimates also suggest that equal division of property benefited divorcing women when it was first introduced, since they had a smaller share of resources in marriage and thus less assets in their name than their husbands. However, counterfactual experiments indicate that the equal division of property may be detrimental to women who consume as much as their husbands in marriage, but have lower wages. When spouses consume approximately equal amounts, secondary earners are better off under a separate property regime because they may need more savings than the breadwinners to smooth consumption when going into a divorce.