Divorce Rates and Bankruptcy Exemption Levels in the United States

Although increasing bankruptcy exemption levels protects consumers from negative asset shocks, an unintended consequence of this policy that remains unexplored is the effect on divorce rates. This effect arises from reducing the benefits of marital risk sharing. I establish conditions under which increases in exemption levels lead to more divorce and investigate using data from Vital Statistics of the United States. I estimate that increases in exemption levels occurring between 1989 and 2005 resulted in more than 200,000 additional divorces during this period and that the effect on divorce rates in 2005 is comparable in magnitude to that found for the introduction of unilateral divorce laws by Wolfers.