Date: 02 Nov 2012

The effects of a Danish legal reform on divorce probabilities and pension savings

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Abstract

This paper investigates how a recent Danish legal reform that changed how pension savings are shared upon divorce influenced divorce probabilities and pension savings. A simple theoretical model predicts that the reform should cause couples to either get divorced or sign postnuptial agreements. Using a large panel of Danish register data, I find that the probability of getting divorced increased by between 0.1 and 0.3 % for couples that were affected by the reform, compared to couples that were not. Although these increases might appear small, given that the average divorce rates for the couples in the sample was less than 1 %, the relative increase in divorce probabilities caused by the reform was between 12 and 40 %. The effects are largest when the wife is the one gaining from getting divorced. Moreover, the reform influenced wives’, but not husbands’, pension savings and caused an increase in the number of postnuptial agreements.