The Economics of Marriage and Divorce
Those who get hitched are more likely to get rich
JULY 08, 2014 by WENDY MCELROY
Among its many advantages, marriage is a potent anti-poverty strategy.
Perhaps the most cited study on the economics of divorce is Jay Zagorsky’s 2005 “Marriage and Divorce’s Impact on Wealth.” Zagorsky used data that tracked Americans in their 20s, 30s, and early 40s, and found that “single respondents slowly increase their net worth. Married respondents experience per person net worth increases of 77 percent over single respondents.”
Married couples’ "wealth increases on average 16 percent for each year of marriage. Divorced respondents’ wealth starts falling four years before divorce and they experience an average wealth drop of 77 percent.” In terms of percentage, women were more likely than men to be harmed by divorce, but the absolute difference between the two was “relatively small.” More recent research supports Zagorsky's basic insights.
Two factors contribute heavily to the financial decline surrounding divorce: losing the inherent wealth-creation aspects of marriage, and State-imposed costs such as alimony and “the divorce industry.” The divorce industry consists of the laws and state agencies that regulate the terms of a divorce, as well as the professionals, such as lawyers and social workers, who make it function.
Why are married people richer?
A February headline in Today read, “Why married people tend to be wealthier: It's complicated.” A more nuanced answer arises from examining “who is getting married these days.” Bradford Wilcox, director of the National Marriage Project at the University of Virginia, argued, “It’s more educated, more affluent and also more religious Americans that tend to get married in the first place. That gives them a starting advantage over their peers who aren’t married.”
The causality behind the creation of marital wealth may be complicated, but three economic factors seem constant over time.
First, those who commit to a lifetime together tend to save and to invest more than singles or couples who cohabit. They may save in order to raise children, to buy a house together, or to have a comfortable retirement. Also, data indicate that married couples receive more money from their families, who are more likely to approve of the relationship.
Second, married couples share the expense of many essentials such as a residence, insurance policies, a car, food, and utilities. This sharing is particularly cost-effective when the costs are fixed ones; for example, a car driven by two people costs no more and saves the need for two cars. Economists call this an "economy of scale,” or a cost advantage that results from the size, output, or scale of operation.
Third, most marriages promote a division of labor through which each party assumes the role he or she does best or which is most productive for the family unit. Even if one party stays at home with no income, the resulting division of labor makes the breadwinner more productive. He or she can concentrate on a career without the distractions of everyday life, such as cooking.
By contrast, couples who cohabit generally save less and keep their money separate because many are not fully committed to each other. And single people, especially single parents, can attest to how difficult it is to maintain a household while holding the sort of demanding job that is remunerative.
Marry in haste, regret it in poverty
Divorce can devastate finances. Some reasons are inherent in the process itself. The division of labor disappears and careers become more difficult. The economy of scale is abandoned, with both parties paying separately for necessities, which can make expenses double. Meanwhile, some assets often lose value because they cannot be split in two as easily as a savings account. A house, a car, or a boat may have to be sold and converted into divisible cash. Since it is difficult to schedule market conditions around a divorce, the asset may need to be sold quickly and below its optimal value.
Much of the expense of divorce, however, has been artificially imposed by State regulation, which has increased dramatically over the past several decades. The documentary Divorce Corp. clocks the cost of the divorce industry at $50 billion a year, flowing from the pockets of divorcing couples and taxpayers who support the state agencies involved. In the Minnesota Star Tribune, reviewer Gail Rosenblum commented, “Although only a small percentage of divorces go to trial, few couples escape getting scorched by ... an adversarial legal system, where the money monster sucks any potential goodwill from once loving couples. With divorce lawyers admitting on camera to charging up to $950 an hour, what’s their hurry to get to a resolution? The pain only intensifies when children are involved.”
Not long ago, marriage and divorce in America was much more of a private matter. In The New York Times, historian Stephanie Coontz wrote, “In the mid-20th century, governments [the federal and state ones in America] began to get out of the business of deciding which couples were 'fit' to marry. Courts invalidated laws against interracial marriage, struck down other barriers and even extended marriage rights to prisoners.” What changed?
Coontz identified one turning point: “Governments began relying on marriage licenses for a new purpose: as a way of distributing resources to dependents. The Social Security Act provided survivors’ benefits with proof of marriage. Employers used marital status to determine whether they would provide health insurance or pension benefits to employees’ dependents. Courts and hospitals required a marriage license before granting couples the privilege of inheriting from each other or receiving medical information.” In short, marriage licenses became linked both to government entitlements and to private arrangements such as inheritance.
Another turning point was no-fault divorce, which was first introduced in California in 1969 and has spread to almost every state. In no-fault divorce, a spouse does not need to prove wrongdoing but can merely claim incompatibility. It is sometimes called unilateral divorce because one party can request it; the other cannot refuse. Moreover, marital conduct cannot be used as a factor in determining the division of property. The arrangement is set by law, not by the parties involved.
According to fathers rights advocate Stephen Baskerville, 80 percent of divorces in the United States are unilateral, and the rate of divorce has soared in the wake of no-fault. Baskerville wrote,
You can be forcibly separated from your children, your home, and your property, also through literally "no fault" of your own. Failure to cooperate with the divorce opens the innocent spouse to criminal penalties. No-fault divorce made divorce far more destructive by allowing the state to undertake court proceedings against innocent people, confiscate everything they have, and incarcerate them without trial.
An agreement that can be unilaterally broken without consequences is not a contract. No-fault divorce removed all vestige of marriage as a contract between two people.
The simple and proper solution is to return to marriage as a civil contract. It does not need to be a complicated agreement. It could and probably would evolve in the same manner as wills have—that is, a variety of standard ones can be purchased inexpensively in bookstores or online. Close down the family court systems that regulate divorce and which provide lawyers with inflated incomes. Allow the breach of a marriage to be arbitrated in a manner spelled out in the contract itself.
Divorce would retain wealth-reducing aspects, of course. Some are inherent to the process. Zargosky offers the best solution: “If you really want to increase your wealth, get married and stay married.”