Should We Write Prenuptial Contracts?

A successful marriage requires for both parties to make investments in their relationship and marital assets. How such assets would be divided if and when the parties divorce is an important factor determining each party’s (exante) investment incentives. Using the “incomplete contracting” approach, we characterize the optimal asset division rule, one that provides the parties with the best investment incentives. We then discuss the circumstances under which the spouses would agree, in equilibrium, to write a prenuptial contract with this asset division rule. We conclude by exploring the implications of our results in the context of various asset division rules currently discussed by policy-makers.