Divorce Law Reforms, Matrimonial Regimes and Family Behaviour

We study how divorce laws affect household formation, dissolution, and behaviour in Mexico, where (i) couples are able to choose an asset division regime at the time of marriage; (ii) states experienced a staggered adoption of no-fault divorce; and (iii) cohabitation is prevalent. Using linked administrative data and an event study design we show that the shift to unilateral divorce affected couples' partnership choice by increasing cohabitation and the degree of assortative mating. While this shift did not have a significant impact on the choice of asset division regime, the increase in divorce rates were largest among those marriages choosing community property. The same reforms also led to an overall increase in women's leisure time. To rationalize these empirical patterns, we develop an equilibrium limited-commitment model of partnership formation, asset division regime choice, and household dissolution that allows couples to choose between cohabitation and marriage and for spouses to cease cooperation within marriage. We use our model to evaluate the life-time welfare value of divorce laws and asset division regime choice, and also consider the role of a homemaker compensation clause.