De Facto Marriage: When Ending a Cohabitation Costs as Much as a Divorce

Abstract

I look at the effects of making the exit costs of cohabitation as high as divorce on new and existing partnerships. I exploit the Family Law Amendment Act, introduced in Australia in 2008, as an exogenous shock to the cost of exiting cohabitation. This law defines cohabiting partnerships as de facto relationships and makes the termination of a de facto relationship equivalent to a divorce. I hence exploit the time discontinuity produced by the reform to identify its effects on the stability of new and existing couples.

I find that when terminating a cohabitation becomes as costly as getting divorced, (i) new unions are more stable (ii) existing cohabitants affected by the reform in their third year are more likely to split, while (iii) the probability of starting a cohabitation and the duration of premarital cohabitation do not change. This paper is the first to look at changes in the exit cost of cohabitation and it does it while disentangling the effect on new and existing partnerships.