The Division of Marital Assets Following Divorce

AuthorW. Dnes
Publication Date01 Sep 1998
In this paper, several possible bases for post-divorce asset division are
examined from an economics-of-law perspective, focusing in particular
on the incentives for opportunistic behaviour set up by the use of reliance,
restitution, partnership, rehabilitation, and needs-based approaches. The
current focus of marital law in England and Wales on a mixture of needs-
based and contractual elements in divorce settlements is vulnerable to
the charge that behaviour is encouraged in both males and females that
is predatory in nature. The contractual uncertainty that follows from this
may well deter some good quality marriages that might otherwise occur.
The paper explores the case for using an expectations-damages approach,
given that this can deter opportunistic divorce. The conclusions favour
an updated and flexible view of the marriage contract. The paper draws
extensively on the American literature covering property settlements.
In this paper, I apply the economic analysis of law to issues concerning the
distribution of marital assets following divorce and the impact of asset
distribution on incentives within marriage.1I draw on the economic analysis
of marriage and the economics of contract law to see if a modern contractual
basis can be given to rules of asset division following divorce.2The main
© Blackwell Publishers Ltd 1998, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA
* Professor and Associate Dean (Research), University of Hertfordshire,
Hertford SG13 8QF, England
I wish to thank participants at the June 1997 LCD Economists’ Forum for helpful comments
on an earlier draft of this paper. I also wish to thank everyone at the Private Enterprise Research
Center, Texas A&M University, where I wrote part of this paper, for their kind hospitality
and helpful discussions.
ISSN: 0263–323X, pp. 336–64
The Division of Marital Assets Following Divorce
1The paper is developed from an earlier report: A. Dnes, The Division of Marital Assets
Following Divorce with Particular Reference to Pensions (1997).
2See J. Carbone and M. Brinig, ‘Rethinking Marriage: Feminist Ideology, Economic Change,
and Divorce Reform’ (1991) 65 Tulane Law Rev. 953; L. Cohen, ‘Marriage, Divorce and
Quasi Rents: Or I Gave Him the Best Years of My Life’ (1987) 16 J. of Legal Studies 267;
and M. Trebilcock, The Limits of Freedom of Contract (1993).
© Blackwell Publishers Ltd 1998
issue is that the dependency and vulnerability of one marriage partner to
opportunistic behaviour by the other is foreseeable under current laws,
opportunism being defined as self-seeking with guile.3As part of my explo-
ration, I examine approaches to division that have either been used by the
courts or suggested by commentators. I find theories of intra-household
bargaining to be very useful in explaining marriage and cohabitation,
whereas older work by Becker is much less useful. I also show how different
regimes for marital property can affect incentives to marry and divorce.
Many readers will be versed in socio-legal work on the family but may
not have encountered applications of the economics of law in the area and
it is worth making a few comments about the approach. First, the analysis
is normative (it appraises the function of rules) and proceeds from a well-
defined perspective on social welfare, which effectively asks what would most
benefit the parties concerned, in their own estimation, if they could bargain
at low cost ahead of the emergence of problems in their marriage. Thus, the
policy analysis is not factional in its focus. Secondly, the (Becker-style
positivist) prediction of behaviour is not central to the paper, although atten-
tion is given to post-marriage incentives to cheat on promises. This paper
would still be relevant if one believed that people married after falling victim
to love potions: if marriages failed there would still be a major issue concern-
ing the distribution of marital assets. Finally, this writer is not an ‘economic
imperialist’: the application of economics to the law gives useful insights but
does not rule out a rôle for other disciplines. The test of usefulness is whether
one could generate the insights otherwise.
The major issues concern the details of the regime to be used to separate
the property rights of a divorcing couple. A discretionary system is currently
used to distribute assets regarded as separately owned, as there is no ‘commu-
nity property’ in English law.4The development of contemporary English
divorce law, for example, as reflected in the Family Law Act 1996, embodies
a mixture of approaches focusing on expectations, rehabilitation, and needs
of the parties, although there is a dominant, statutory requirement to meet
the needs of dependent children. Characteristics are the trading of asset
transfers within a settlement and the trading of assets for maintenance
payments. It is relatively straightforward to show how particular approaches
to asset division support the welfare of the divorcing parties.
Two adverse incentives are of particular interest. Financial obligations
may create incentives for a high-earning partner (usually male) to divorce
a low-earning, or possibly simply ageing, spouse if the law does not require
full compensation of her implied losses. I call this the ‘greener-grass’ effect.
3 Oliver Williamson’s definition in The Economic Institutions of Capitalism (1985), at 47.
4Current law is taken from B. Hoggett et al., The Family, Law and Society: Cases and Materials
(1996, 4th ed.). A community-property rule has recently been proposed as the LCD has
suggested that prenuptial agreements should carry legal weight and in their absence a rule
of equal sharing might prevail (‘Till Adultery Do Us Part’ Times, 3 March 1998, reporting
announcements by Geoffrey Hoon, Parliamentary Secretary).

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