Bargaining Over Divorce Settlements and Child Support

Abstract

As a result of the increasing divorce rate over the past decades, there is an increased need for settlements to divide marital property, to determine child custody and visitation, and to calculate the level of child support payments to be made by the noncustodial parent. Given the growing burden on the U.S. court system, many states have stressed mediation as an alternative to a court settlement. What determines whether the bargaining parties reach a bilateral settlement or they resort to use of the courts? In this paper, the process of negotiation is represented as a bargaining model with asymmetric information on risk type. The model offers several predictions on the determinants of both the probability of settlement and the amount of the settlement: (1) court costs increase the probability of settlement, (2) the higher the income of the payer, the lower the probability of settlement, (3) risk averse payees settle early and, therefore, settle for less, and (4) the greater the power differential between the payer and the payee, the lower the settlement. The predictions of the model are empirically tested using the Stanford Child Custody Study.Estimation of the determinants of conflict indicate that the income of the payer increases the level of conflict in both the spousal support settlement and the child support settlement. In addition, the results provide support for the hypothesis that the costs of continuing the dispute have a negative effect on the level of conflict. Estimation of the determinants of the amount of the settlement support the hypothesis that the level of conflict has a positive impact on the amount of the award.

JEL Classification: C78, K41, J13