At the end of the 1960s, the U.S. divorce laws underwent major changes and the divorce rate more than doubled in all of the states. The new laws introduced unilateral divorce in most of the states and changes in divorce settlements in every state, such as property division, alimony transfers, and child custody assignments. The empirical literature so far has focused on the switch from consensual to unilateral divorce and found that this change cannot fully account for the increase in the divorce rate. Also, the divorce rate increased even in states where the decision remained consensual. In this paper, I consider the effects of other aspects of the legal change. I show that changes in divorce settlements provide economic incentives for both spouses to agree to divorce. Moreover, I describe a mechanism that can explain the different change in divorce rate by age of couples. I solve and calibrate a model where agents differ by gender, and make decisions on their marital status, investment and labor supply. Under the new financial settlements, divorced men gain from a favorable division of property, while women gain from an increase in alimony and child support transfers. Since both of them are better off in the new divorce setting, the existing requirement of consent for divorce (consensual or unilateral) is no longer relevant. Results show that changes in divorce settlements account for a substantial amount of the increase in the aggregate divorce rate. I also find that the increase in divorce rate of young couples with children contributes the most to the overall increase, which is consistent with the data.
B.E. Journal of Macroeconomics
J12: Marriage; Marital Dissolution; Family Structure; Domestic Abuse
D13: Household Production and Intrahousehold Allocation
K36: Family and Personal Law