23 Pages Posted: 28 Sep 2005
Date Written: September 15, 2005
This paper examines the incentives that divorce laws concerning property division can have for divorce and investment in marital assets. In particular, it notes the spread of equal division of matrimonial property. Canada and 10 US states currently use a community rule, which divides matrimonial property equally with very few exceptions, while the rest of the US states employ common-law rules, which start with the presumption of equal division but can make changes based on such things as contributions to the asset. This paper examines whether the community rule could be efficiency enhancing relative to the common-law rule. The paper considers an environment in which spouses have multiple inputs, such as time and money, to a marital asset, but the choices a spouse makes with regards to one input, say time, is not observable to the courts. In such an environment, it is demonstrated that the community rule leads to efficient investment in the marital asset while the common-law rule does not. Further, sufficient conditions are found for which the community rule leads to a lower divorce rate than the common-law rule.
Keywords: no-fault divorce, property division laws, efficiency
JEL Classification: K11, D13, D61
Suggested Citation: Suggested Citation