"Unhappy Contracts": The Case of Divorce Settlements

This paper examines a particular type of contracts that is, sadly, increasingly frequent: the agreements produced by divorcing couples. They are unhappy contracts, agreements produced as a necessary part of exit from what is now suboptimal marriage. They are virtually required by many states and are, in theory at least, closely monitored by courts since, when children are involved, they will be incorporated into court orders.What parties to unhappy contracts do is attempt to minimize losses, rather than maximize gain. How are contracts structured that will do this, and how does a difference in the size or power of the bargaining entities change the final settlement or contracting result? Because they are for more than one year, they also must be analyzed as relational contracts.This empirical study not only considers how the contractual terms come to be, but also what effect they have over a five year period, with an eye to seeing which contracts produce (or are at least consistent with) further litigation and which correspond with adjustment over time. The role of lawyers in the entire process is also a focus of the inquiry. Special attention is also paid to the role of fault, with surprising results in a no-fault system. All the divorce stipulations for parents of minor children that were filed in Johnson County, Iowa, during 1998 provide the beginning data, which is supplemented by other court records in each case.