An Economic Analysis of Financial Support after Divorce

This paper analyses whether the effect of compensation of former spouses after divorce has an impact on the probability of divorces occurring. In particular, it is assumed that the income difference after divorce is shared equally between former spouses, in line with rules in Germany. The reference situation within the marriage is, on the one hand, Nash-bargaining and, on the other, Becker-type altruistic sharing. It turns out that sharing increases the probability of divorce where there are no changes in labor supply. If labor supply is adjusted to the sharing rules after divorce, no general result is possible. If productivity is similar, the sharing rule will lead to less divorces than in the absence of such a regulation. However with large productivity differences separations are more probable in the case of income sharing compared to a situation without such a compensation. Labor supply adjustment in general reduces the number of divorces compared to the situation without labor supply adjustment.

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