Breaking up Financial Surprises and Partnership Dissolution

Estimates based on couples with dependent children in the first six years of the British Household Panel Study (1991-97) indicate that changes in a couple’s economic circumstances affect the probability that a partnership dissolves. In particular, unexpected improvements in finances substantially reduce the dissolution risk, which strongly supports the importance of new information in decisions concerning partnership dissolution. Measures of a couple’s own expectations concerning their financial situation over the coming year have been used in conjunction with realised changes to gauge the impact of unexpected changes. The study also finds that the risk of partnership dissolution increases with the number of children. Acknowledgement: We are grateful to the Economic and Social Research Council and the Department for Social Security for financial support for this research. An earlier version of this paper was presented at the Royal Economic Society Annual Conference 1999 in Nottingham. Neither of these organisations is, however, responsible for the views expressed in this paper. JEL Classification: J12