The Economics of Divorce

How divorce affects household finances, why the costs often fall unevenly, and what economists learned from changes in divorce laws.

Divorce is a personal and emotional event, but it is also an economic one. When a household splits, the economies of scale that came from sharing a home are lost, and the family’s income must now support two homes instead of one.

The financial impact

Studies in many countries find that household income per person falls after divorce, and that the drop is usually larger for women than for men. Reasons include:

Women are more likely to have reduced paid work to care for children during the marriage.
Children more often live mainly with their mother, raising her household’s costs.
Men’s earnings are often higher, so they may be less affected by losing their partner’s income.

To address this, courts can order child support, payments from one parent to the other to help cover children’s costs, and sometimes alimony or spousal support, payments to a former partner who is financially dependent. Enforcement of these payments is uneven, and many support orders are not fully paid.

When divorce laws changed

In the late 1960s and 1970s, many U.S. states adopted unilateral divorce, which allowed one spouse to end a marriage without the other’s consent. Economists used this change as a natural experiment. Research by Betsey Stevenson and Justin Wolfers found that states adopting unilateral divorce saw significant declines in female suicide and in domestic violence. The explanation is that the option to leave increased the bargaining power of spouses in unhappy or abusive marriages.

Two homes on one income

A family of four living on 60,000 dollars a year shares one home costing 1,500 dollars a month. After divorce, each parent needs a home suitable for the children to visit or live in, and rent might total 2,500 dollars across both. The same income now covers far higher housing costs, so both households are poorer than the family was together.

Planning ahead

Economists note that the risk of divorce is a reason for each partner to maintain some independent earning power, pension savings and financial knowledge. Prenuptial agreements, more common in some countries than others, are one way couples set out financial terms in advance.

Thinking divorce only redistributes money

Divorce does not just move money from one partner to another. It destroys some value, because the savings from sharing a household disappear. That is why both former partners, and often the children, frequently end up worse off financially than before.

Key takeaways

Divorce ends the economies of scale of a shared household, reducing living standards.
The financial drop is usually larger for women, especially those caring for children.
Child support and alimony aim to share costs, but payments are not always made in full.
Research on unilateral divorce laws found declines in domestic violence and female suicide.