Divorce laws and divorce rate in the U.S

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, such as property division and child custody assignments in every state. Empirical literature 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. What previous literature has ignored is other aspects of the legal change, and their effect on divorce rate in states where the decision remained consensual. In this paper I show that changes in divorce settlements provide economic incentives for both spouses to agree on divorcing. I solve and calibrate a model where agents differ by gender, and wages, and make marital status, investment, and labor supply decisions. Under the new financial settlements, divorced men gain from a favorable division of property, while women gain from an increase in joint child custody assignments. Since both of them are better off in the new divorce setting, the requirement of consent for divorce is not longer necessary. Results show that changes in divorce settlements account for a substantial amount of the increase in the divorce rate in both the unilateral and the consensual regime. I also find that the increase in divorce rate of young couples with children contributes the most in the overall increase, and this is consistent with the data.