Spousal Matching, Marriage Contracts and Property Division in Divorce

We develop a collective household model with spousal matching in which there exists marital gains to assortative matching and marriage quality for each couple is revealed ex post. Marriages, intra-marital allocations and divorce are all determined endogenously. Changes in the laws that regulate property division in divorce affect existing couples and couples-to-be differently. For existing couples, legislative changes that favor a spouse benefit him/her especially if the marriage match quality is low. For couples not yet married, they generate offsetting intra-household transfers and lower intra-marital allocations for the spouse who is the intended beneficiary. Thus, while new divorce property division rules can have temporary effects in their desired direction, their longer term impact on intra-household allocations in marriages not yet formed can be completely undone in the marriage markets. Equilibrium intra-marital allocations also need to be time consistent. Hence, changes in divorce settlements laws could have lasting effects on the time paths of spousal allocations in existing as well as future marriages.