Negative equity and its effect on divorce rates

Abstract: Several lifestyle and financial variables have been observed to have an effect on divorce rates, but the possible effect of debt and housing prices remains unknown. Variables that have been used, such as employment, education level and income have been shown to not fully explain variations in divorce rates. In this paper we measure the prevalence of negative equity for American households to see if it has any significant effect on divorce rates, while suggesting that as the share of homeowners with underwater mortgages increases, divorce rates will decrease due to locked-in effects. We exploit the financial shock in 2008 which reduced the overall house price index and decreased asset values for numerous households. By gathering data on both a county and state level, we use aggregate data to measure if distressed housing prices and debt has a significant effect on divorce rates. In contrary to our thesis, although with slight explanatory value, low debt-to-income values in households seem to reduce divorce rates and high debt-to-income values seem to increase divorce rates. Furthermore, our research suggests that the differences in divorce laws between states and counties as well as the decreasing overall marriage rate have had the largest impact on American divorce rates.