Divorce as a Re-Distributive Mechanism and Wealth Transfer
By Sam Vaknin
Author of "Malignant Self-love: Narcissism Revisited"
"Even in modern times, in most cases husbands and wives differ in their potential for acquiring property. In separation of property, husbands and wives owning property and dealing with each other will be in the same position as unmarried adults.
There are, however, grounds for distinguishing marital property questions from ordinary property questions, because persons who cohabit on a domestic basis share a common standard of living and usually also the benefits of each other's property. A major element in many marriages is the raising of children, and the traditional female role, requiring her full-time presence in the home, places the married woman at a disadvantage so far as earning money and acquiring property are concerned. It is inconsistent of society to encourage a woman to take the domestic role of wife and mother, with its lower money and property potential, but in property matters to treat her as if she were a single person. It is also inconsistent to place upon the husband the sole responsibility for maintaining his wife and children, if his wife has regular employment outside the home. When the marriage is dissolved, if the wife has not been regularly employed and now enters the labour market on a full-time basis, she may be at a considerable disadvantage as far as salary and pension rights are concerned."
Encyclopaedia Britannica, 1997 Edition
When a man and a woman dissolve their marriage, matters of common matrimonial property are often settled by dividing between them the assets generated and accumulated by one or both of them during the marriage. How the property is divided depends on the law prevailing in their domicile and upon the existence of a prenuptial contract.
The question is legally exceedingly intricate and requires specific expertise that far exceeds anything this author has to offer. It is the economic angle that is intriguing.
Divorce in modern times constitutes one of the biggest transfers of wealth in the annals of Mankind. Amounts of cash and assets, which dwarf anything OPEC used to have in its heyday, pass between spouses yearly. Most of the beneficiaries are women. Because the earning power of men is almost double that of women (depending on the country) – most of the wealth accumulated by any couple is directly traceable to the husband's income. A divorce, therefore, constitutes a transfer of part of the husband's wealth to his wife. Because the cumulative disparities over years of income differentials are great – the wealth transferred is enormous.
Consider a husband that makes an average of US $40,000 after-tax annually throughout his working years. He is likely to save c. $1,000 annually (net savings in the USA prior to 1995 averaged 2.5% of disposable income). This is close to US $8,000 in 7 years with interest and dividends reinvested and assuming no appreciation in the prices of financial assets.
His wife stands to receive half of these savings (c. $4,000) if the marriage is dissolved after 7 years. Had she started to work at the same time as her husband and continued to do so for 7 years as well – on average, she will have earned 60% of his income.
Assuming an identical savings rate for her, she would have saved only US $5,000 and her husband would be entitled to US $2,500 of it. Thus, a net transfer of US $1,500 in cash from husband to wife is one of the the likely outcomes of the divorce of this very typical couple.
But this ignores the transfer of tangible and intangible assets from husband to wife. A seven year old couple in the West typically owns $100,000 in assets. When they divorce, by splitting the assets right down the middle, the man actually transfers to the woman about $10,000 in assets, taking their income differential into account.
An average of 45% of the couples in the Western hemisphere end up divorcing within 7 years. A back-of-the-envelope calculation demonstrates the monstrous economic magnitude of this phenomenon. Divorce is, by far, the most powerful re-distributive mechanism in modern society.
Despite recent social advances, women still belong to an economically underprivileged class, are still highly dependent on male patronage and, therefore, are the great beneficiaries of any social, progressive, mechanisms of redistribution. Income taxes, social security, other unilateral transfers, single parent benefits – all accrue mostly to women. The same goes for the "divorce dividend" – the economic windfall profit which is the result of a reasonable and standard divorce.
But economic players are assumed to be rational. Why would a man be a willing party to such an ostensibly disadvantageous arrangement? Who would give up money and assets for no apparent economic benefits? Dividing the matrimonial property in the above mentioned illustrative case is the equivalent of a monthly transfer of US $150 in cash and assets from the husband to his wife throughout their 7 years of marriage.
What is this payment for? Presumably, for services rendered by the woman in-house, in child rearing, as a companion, and in the conjugal bed. This must be the residual value of these services to the man after discounting services that he provides to the woman (including rent for the use of his excess property, sexual services, protection, companionship to the extent that he can provide it, etc.). This is also the marginal value added of these services.
It is safe to say that the value of the services that the woman renders to her man exceed the value of the services that he provides to her – by at least US $150 per month. This excess value accrues to the woman upon divorce.
But this makes only little sense. Consider the woman's ostensible contribution to the couple in the form of children.
Children are an economic liability. They are not revenue generating assets. They do absorb income and convert it to property when they grow up. But the children's property does not belong to the parents. It is outside the ownership, control, and pleasure of both members of the couple.
Every dollar invested by the parents in their offspring's education – is an asset to the off-spring and a liability for the parents. Why should a man stimulate a woman (by providing her with US $150 a month as an incentive) to bring children to the world, raise them, and make them the beneficiaries of the parents' resources?
The couple's offspring compete with their father for scarce resources. It is an economic Oedipus complex. When a woman maintains the house, she preserves its economic value and both members of the couple enjoy it. When she prepares dinner for her mate, or engages in lively talk, or has sex with him – these are services rendered for which the male should be content to pay. But when she raises children -–this both reduces the quality of services that the man can expect to receive from her (by taxing her resources) and diminishes the couple's assets (by transferring them to people outside the marital partnership).
There is only one plausible explanation to this apparently self-defeating economic behavior. Rearing children is an investment with anticipated future rewards (i.e., returns). There is a hidden expectation that this investment will be richly rewarded (i.e., that it will provide reasonable returns).
Indeed, in the not too distant past, children used to support their parents financially, cohabitate with them, or pay for their prolonged stay in convalescence centres and old age homes. Parents regarded their children as the living equivalent of an annuity. "When I grow old" – they would say – "my children will support me and I will not be left alone."
Such an economic arrangement is also common with insurance companies, pension funds and other savings institutions: invest now, reap a monthly cheque in old age. This is the essence of social security. Children were perceived by their parents to be an elaborate form of insurance policy.
Today, things have changed. Higher mobility and the deterioration in familial cohesion rendered this quid pro quo dubious. No parent can rely on future financial support from his children. That would constitute wishful thinking and an imprudent investment policy.
As a result, a rise in the number of divorces is discernible. The existence of children no longer seems to impede or prevent divorces. It seems that, contrary to a widespread misconception, children play no statistically significant role in preserving marriages. People divorce despite their children. And the divorce rate is skyrocketing, as is common knowledge.
The less economically valuable the services rendered by women internally and the more their earning power increases, the more are the monthly transfers from men to women eroded. This looming parity gives impetus to prenuptial property contracts, and to separation of acquests and other forms of matrimonial property.
Women try to keep all their income to themselves and out of the matrimonial property. Men prefer this arrangement as well, because they feel that they are not getting services from women to an extent sufficient to justify a regular monthly transfer. As the economic basis for marriage is corroded – so does the institution of marriage flounder. Marriage is being transformed unrecognizably and assumes an essentially non-economic form, devoid of most of the financial calculations of yore.