Some thoughts on alimony

Originally posted as a comment to this post on Glenn Sacks’ blog:

One basic argument for alimony is that a man develops his human capital because his wife frees him up to do so and in the process neglects the development of her own human capital. This “human capital” gained by the husband is community property and thus the wife is entitled to a share of it upon divorce. This gives rise to alimony, which is a share of future earnings of the community’s human capital (this is why a wife owes no services to the husband in exchange for alimony as some guys would expect).

There are a couple of problems with this theory.

1) What is the marginal contribution of my wife staying at home? Would I have achieved the same salary if she had worked full time or not been there at all? If not, how much less? In theory, the alimony should be calculated on the marginal contribution to human capital but in practice this is very difficult to determine. Naturally, the stay-at-home party would like to argue that ALL differences in income are attributable to their stay-at-home support. This completely ignores drive, prior education, and natural ability, therefore I have a hard time with alimony being set at 50% of the difference in net incomes.

2) Absence of consent. In my case, I earned a six figure salary but my wife refused to work despite having a Masters degree. She wanted to be a stay-at-home mother without my consent – in fact she even got pregnant without my consent. She refused to work despite constant demands on my part. What if the court, instead, placed the burden on the woman to prove that the couple agreed to the stay-at-home arrangement? At the moment there is no burden, just a presumption that the partnership agreed that one partner stayed at home.

3) Existing human capital. Why is a pre-nup required to protect human capital that is brought to the marriage? Shouldn’t there be a presumption that a wife in no way contributed to a salary-level attained before the marriage? For instance, why did Johhny Carson have to pay enormous alimony to five wives when presumably his income level was achieved before most of the marriages? The problem is that many women see alimony as a ‘right’ or ‘prize’ for capturing a rich husband (the gold-digger syndrome).

4) The human capital theory also assumes that the wife’s human capital would have developed at the same rate as the husband’s human capital so that if the husband was earning $120,000 and the wife $25,000 that the wife would be earning $120,000 if she had not stayed at home. Obviously this depends on the starting human capital of both partners. If they both went to law school then this might be true, however if the husband graduated from law school before the marriage and the wife was a high school dropout then this is highly unlikely. So the wife wasn’t giving up much foregone income or human capital by staying at home.

In my case, my ex had a master’s in education. The difference in income between being a teacher on the master’s scale for 20 years versus re-entering the system at the bottom was about $20,000 per year – $40K vs $60K. This difference is the cost of staying at home. Of course, this gap will close as she stays longer in the system. The judge, however, based alimony on my income of $120,000 because of a crazy notion of keeping her in her “accustomed” lifestyle.

In Australia, alimony is only paid to keep a wife from being a welfare charge not at some “accustomed” standard of living. Only 7% of cases attract alimony.

The US courts seem to support the insurance (or gold-digger) theory of alimony. If one argues that looks are a woman’s key asset and this asset depreciates over time then she needs insurance against a man kicking her to the curb when she loses her looks (the younger woman scenario). I sympathize with the insurance dilemma but I believe it creates the wrong incentives for women (which is catch a man when young then stay at home because you don’t need to develop human capital because you have insurance). At the end of the day, society needs to design a system with appropriate incentives for both parties to develop their human capital.

In my system, in the absence of an explicit written agreement to stay at home, the woman should take responsiblity for developing her own human capital – we are meant to be equal after all (according to the feminists). There would be no “alimony as insurance”. This would make expectations clear and people would adjust their behavior to the signals (i.e. there would be fewer stay-at-home moms and perhaps dads would spend more time parenting).

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3 Responses to Some thoughts on alimony

  1. stevphel says:

    Mike Hunter Says:

    December 21st, 2007 at 1:58 am
    Steve made some excellent points. I have just a few things to add.

    1.)

    The reason so many women decide to: divorce, balloon up to the size of whales, stop taking care of a man’s needs, or decide to sit at home all day and eat bon-bons while watching soaps is a problem of moral hazard.

    This is a problem insurance company’s deal with all of the time. Moral hazard is the prospect that a party insulated from risk may behave differently than it would if it were fully exposed to the risk. For example, an insured party’s behavior might be more risky than it would have been without the insurance. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.

    For example, an individual with insurance against automobile theft may be less vigilant about locking his car, because the negative consequences of automobile theft are borne by the insurance company.

    Or in our example a woman who gets married is more likely to: Become significantly obese, quit her job, refuse to do house work, stop having sex on a regular basis, spend all of her husbands money, and sit around eating twinkies while watching daytime tv. This is because she knows that she will get alimony and mommy (child) support; which for all intents and purposes is marriage insurance. Marriage insurance provided unwillingly by the husband, and to the determent of the husband.

    By providing one party in a marriage with alimony you create financial incentives for them to act dishonestly before the marriage takes place, and to act inappropriately while actually married. You also provide a financial incentive to get divorced. And like it or not the fact is people respond to financial incentives.

    2.)

    The second problem with alimony is that its purpose is to compensate a party for the opportunity costs’ incurred for entering into a contract. After all once you strip away the propaganda that’s all marriage really is, a contract. And the idea of forcing one party to pay for the opportunity costs’ incurred by another party is ludicrous.

    Suppose that tomorrow I decide to invest $10,000 into mutual fund (A) and after a year I only get a return of 6%. But I could have gotten a return of 13% from mutual fund (B). No judge in his right mind would force mutual fund (A) to pay me the extra 7% interest that I lost out on because I made a poor decision when choosing to invest my money.

    The same common sense logic should apply to marriage. No one forced the wife to get married. She chose to enter into a contract and invest her time and efforts. If the marriage works out then great; she should be able to enjoy the fruits of her labor. If it doesn’t work out then too bad! She has to take responsibility for the risks that come with entering into a contract as the rewards. Either women are our peers or they’re not. Either they’re the property of the man they marry or they’re an independent and equal person capable of taking responsibility for their decisions. Society needs to pick one because they can’t have it both ways.

    3.)

    The assumption that alimony is based upon is flawed. Obviously given a chance to work unencumbered by marriage good looking high school drop outs rarely end up making as much money as a neurosurgeons. And while sometimes a wife may help her husbands career she may also hurt it or end up having no significant effect either way.

    I suspect that a lot of the time a husband indeed makes more money because of his wife; because he is forced to. For example his wife may unilaterally decide to become “accidentally” pregnant, and then again unilaterally decide to have then keep the child. The husband is then forced into a harder, higher paying, less rewarding, and more stressful job. Notice that although he now is forced to make more money this doesn’t make him more wealthy. All of the extra money goes to expenses that his wife incurred which he had no say over.

    4.)

    Assuming that custody is 50/50 then no one should get child support. It’s Child Support not mommy support. Child support is for the child, and in a 50/50 custody arrangement each party is bearing their part of the cost for raising the child.

    There are two ways to fix this mess. The best way is for the government to get out of the marriage business all together, and allow two or more consenting adults to create their own marriage contracts which the government will then enforce.

    The second thing that could happen is to simply end alimony. As a practical matter the best thing that all you single guys can do to protect yourself is simply refuse to get married, and write your representatives. No one is forcing you to get married and sign your life away. Once women start realizing that men are refusing to get married because of an unfair family law system the problem will start to fix it’s self. After all it’s almost always women pushing for marriage; most of the time guys could care less about getting hitched.

  2. Matt Linder says:

    Wow you are right on! As I’m still trying to end my 1st and only marriage I can assure you I will never get married again unless the laws are fixed! I recommend everyone to never get married at least all the men, women have nothing to loose getting married.

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