This paper considers how divorce law affects couples’ incentives to make investments in their marriage. In particular, we analyze state changes in divorce laws that allowed divorce on demand by either spouse and removed fault as a basis for property division. These changes in family law potentially affect the incentives to make investments whose returns are partly marriage-specific, such as in a spouse’s education, home ownership, children, and specialization in market versus non-market production. In order to minimize the problems caused by the endogeneity of the survival of a marriage, this paper focuses on newlywed couples in their first marriage. I find that adoption of unilateral divorce reduces investment in all types of marriage-specific capital considered except home ownership. Unilateral divorce laws – regardless of the property division laws – leads to less support of a spouse’s education, fewer children, greater female labor force participation and an increase in households with both spouses engaged in full-time work. In contrast, results for home ownership depend on the underlying property division laws and suggest an increase in home ownership under no-fault property division.
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