The Effect on Divorce of Legislated Net-Wealth Transfers

In recent years, legislatures have imposed several types of guidelines restricting court discretion. Guidelines designed around average cases, however, can lead to problems for nonaverage situations. In the context of divorce, poorly designed child support guidelines may create an opportunity for a net-wealth transfer in excess of the costs of children for nonaverage families and therefore create an incentive to divorce. This incentive to divorce, when coupled with the ability to divorce under no-fault laws, may lead to higher divorce rates for certain classes of couples. This article exploits the 1997 Canada Child Support Guidelines to test the divorce prediction using data from the Survey of Labour Income Dynamics. I find separation rates increase after implementation of the Guidelines among couples with income of $25,000 per year