THE IMPORTANCE OF FINANCIAL CONSIDERATIONS IN DIVORCE DECISIONS

Authors

  • H. ELIZABETH PETERS

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    • *Assistant Professor of Economics and Research Associate in the Population Program, University of Colorado. This research was funded by NICHD grant #5R23HD21882–02. The author would like to thank Bettina Herr and Laura Argys for excellent research assistance and George Jakubson, Tom Mroz, and William Schulze for comments.


Abstract

This paper studies the linkage between the expected financial consequences of divorce and the decision to become divorced. A standard choice-theoretic model predicts that the probability of divorce will be negatively related to the financial opportunity cost of divorce. This opportunity cost is measured as the difference in the present values of the future income streams that a married woman might expect if she were to stay married rather than become divorced. Our empirical results indicate that the expected short-term financial consequences are a better predictor of subsequent divorce than are the longer-term consequences.

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