Efficiency and the Division of Marital Assets

Abstract

This paper examines the incentives that property division laws can have for divorce and investment in marital assets. This 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, are not observable to the courts. In such an environment, it is demonstrated that when spouses specialize, as in a traditional family structure, the common-law rule may be efficiency enhancing. However, when both spouses work and strong consumption complementarities are present, equal division leads to more efficient investment in the marital asset. Further, sufficient conditions are found for which the community rule leads to a lower divorce rate than the common-law rule.divorce, efficiency, marital property