Wealth brings a lot of advantages in life, and new research from Wharton business economics and public policy professor Corinne Low highlights yet another. In a paper titled “Collateralized Marriage,” Low and co-author Jeanne Lafortune show how wealth — specifically home ownership — factors into relationships and lends security in a marriage contract, with important policy implications. Low spoke about the paper recently with Wharton Business Daily.


Dan Loney: Is there a correlation between owning a home and the success or failure of a marriage?

Corinne Low: Yes. I have new research out with Jeanne Lafortune. It’s a paper we call “Collateralized Marriage,” because we talk about how a home and other assets act as collateral in the marriage contract. While marriage might have some romantic components, it’s also a legal contract, and that legal contract specifies what happens if the marriage doesn’t work out. What we talk about in the paper is that for people who are able to afford a home or have other assets, that contract has this extra strength of collateral because that home is going to be divided in case the relationship doesn’t work out.

It used to be that marriage was sort of the only contract that was available to people if they wanted to form a relationship and have children. But that’s not the case anymore. Since around the ’90s, we’ve had many legal changes that have made non-marital fertility a possibility that still enables fathers to have rights and responsibilities. That means that people now have two substitutes that they can consider. They can think about: Do I want to enter this relationship, start this family with a non-marital contract, which still offers some rights and responsibilities, or do I want the marriage contract? What we show in the paper is that for people who are able to afford a home, the marriage contract is stronger and better. But for people who aren’t, those two contracts are going to be more similar.

Loney: Right now, you have mortgage rates that are up around 8%. You had so many people who refinanced mortgages a couple of years ago. And you also have the lower level of housing that’s available in general. How are those dynamics impacting some of those decisions right now?

Low: Based on my research, what we use is variation in house prices at the time that people are entering into a relationship. Then we look at how that impacts the decision to get married, and then what the marriage looks like.

For people who were facing cheaper housing prices at the time they entered the relationship, and therefore are more likely to own a home, we find that their relationships are stronger in a couple of key ways.

Getting into a marriage involves taking certain kinds of risks. It involves saying, “All right, I’m going to put my interests to the side in this case and do what’s right for us as a family, or us as a couple.” But that’s risky if the relationship could dissolve, and you could be left bearing the burden of those risks that you took.

For example, a couple that has to decide: “One of us has a really good job opportunity in another city. It’s going to negatively impact the other person’s career. Do we go for it?” If you’re not married, you’re probably unlikely to do that because that’s a giant risk. But if you’re married, you would say, “OK, we have that assurance that we’re in this contract, and if there are assets, those assets are going to be divided.” If one person’s career really takes off, and that helps them accumulate a lot of assets, those assets are going to be divided.

I know it sounds unromantic to talk about it that way, but that is part of what marriage is about. It is a legal contract. Nobody enters into a marriage thinking it’s going to end, and yet that possibility is there. We just know that the statistics mean that that possibility is there.

Nowadays, these couples who are facing these super high mortgage rates — what my research says is that because it’s going to be harder for them to own a home, they’re more likely to remain as renters, and that might affect the type of relationship they choose. That might cause them to be less likely to get married, and if they do marry, it might cause them to be more cautious about taking those kinds of risks. One of those risks is somebody taking an extended period of parental leave — usually it’s the mother — to stay home with kids.

Think about the risk that creates for her. Now she’s putting her career growth to the side, focusing on the kid. The other person — usually it’s the man — is still continuing to invest in his career. His salary is growing. If you don’t have a contract, and he can just walk away, you could be left with that lower earning potential, while meanwhile, he has this great career that he has built. And that’s what the marriage contract protects people from.

But without assets, you have much less protection. A home is the main asset that people in the United States have. These couples who are facing these very high mortgage rates are also facing risks to their relationship security.

Loney: Unfortunately, when you’re going into a marriage, you know divorce a possibility, but you maybe don’t think about it on a day-to-day basis.

Low: That’s right. Sometimes people ask me, “Do you really think people go around maximizing these utility functions with the probability of divorce in there?” I don’t. But I do think that something happened when divorce became much easier in this country, because it used to be very uncommon and difficult.

When it became much easier and unilateral, that one person could decide, “I want to walk away from the marriage,” I think women heard stories [about other women] who got really screwed over in a divorce. She spent her whole life staying home with the kids, taking care of the house — that’s still economic value you’re creating, your home production — but investing in that form of economic value that you can’t take with you as easily if the relationship dissolves.

Meanwhile, her husband became partner at the law firm, became a surgeon, had all of this money, and she got screwed over. I think women heard those stories, and they said, “I need to protect myself.” That’s how I think people think about it. It’s not, “I have this probability I’m placing on this,” but it’s, “I’m taking into account these stories that I’ve heard, and then I’m going to be more cautious in my decision.” That means if I enter a relationship where I don’t have the security of a home, I’m going to be more cautious in the investments I’m going to make in my family.

That ultimately ends up affecting kids because those investments are things that are good for child human capital. That’s a fancy term economists use. It’s time you spend doing homework with your kids at the kitchen table. But that’s an investment. That’s choosing to take your time, and instead of putting it into your own career, instead of finishing those legal briefs or staying up late working on that spreadsheet to advance your own career, you’re investing in your child’s future potential. Again, those investments are risky if you don’t have any kind of insurance.

Loney: You’re talking about what is a very unique and it seems like a multifaceted trickle-down effect from this component.

Low: Investing in children, because that affects economic inequality, because if people who are wealthier and able to afford homes are more able to take this risk of investing in children, then that’s going to create a further spread between the haves and the have-nots. There’s this really interesting book right now by [University of Maryland economics professor] Melissa Kearney that has been getting a lot of attention. It’s called The Two-Parent Privilege. She talks about how much better off children are when they’re part of a two-parent, married household, rather than this sort of non-marital fertility setup that I talked about.

I think we need to look at the economic forces that might make it harder for or easier for families to form that relationship. If we know that owning a home is something that provides the collateral, that provides the security for that contract, how do we make it easier for people who are poor to access this, especially at a time of 8% mortgage rate?

Loney: Is there a value of the home that leads to a greater level of security within the relationship?

Low: Yes, so I think what we link it back to is about the contract that you have access to. When house prices were low, people choose this stronger relationship, with more risk, more skin in the game, more, “I’m going to make these investments, and that’s OK because I know that later I’m going to be taken care of.”

When they have access to these lower housing prices and more ability to do it, that’s what people are choosing to do. We think that that has value to people. Our issue is the policy changes in the U.S. that have weakened the marriage contract. We’re making divorce a lot easier, making it one-sided — one person can just say, “I want to get divorced.” That didn’t used to be the case. There are a lot of benefits of making divorce easier, and I don’t want to downplay that. We can think about women in abusive or otherwise really bad marriages who need that ability to walk away.

But I don’t think we’ve talked about the other side of it, which made the marriage contract weaker. We’ve made this non-marital fertility contract stronger. And now we’ve created this bifurcation, where for people with assets, the marriage contract still has extra teeth because the marriage contract says whatever assets are accumulated during the marriage, no matter who paid for them, those are to be divided at the time of divorce.

The non-marital fertility contract specifies child support, it specifies parental rights, but it doesn’t say anything about assets. For people with assets, they still have access to this stronger contract that we call “collateralized marriage,” and so they’re going to choose that marriage contract. The issue is we’ve taken that option away for people without assets. Now there is no way for them to access this stronger contract, and this stronger contract is what we think is also creating a better environment to invest more in children, again contributing to this broader inequality in a country that’s already deeply unequal.

So, you start with people who have more assets, people who have less assets, and now you’re exacerbating this by saying that people with more assets can also access the stronger relationship that again, as Melissa Kearney’s book showed, is better for children.

Loney: What is the takeaway for couples?

Low: I think there are takeaways for couples to say if you want to be able to take these kinds of risks that are mutually beneficial, you need to figure out how you are offering that security. If you can’t afford a home, what are the other things you’re doing to ensure that you’re offering that security to the person who is going to take those risks? How are you structuring your relationship? Again, nobody wants to think about divorce. It’s an unromantic thing to think about at the time you enter into a relationship, but how are you setting things up so that both people are protected in the case of this future scenario, where one person has spent their time investing more in children, one person has spent more time investing in a career. How do you make sure that both people are protected?

I also don’t think that we can give up from the policy side because there are things that we can do to make homeownership easier for people with lower assets. We can create programs where the federal government backs people with lower levels of assets or worse credit, so they can get those prime mortgage rates. People with worse credit are facing those subprime rates that aren’t even the 8% mortgages. They’re facing a higher rate.

The federal government can do things to make sure that people are able to get that insurance that could be backed by a federal agency. The federal government also could create programs to help people with down payments or to, again, back the mortgages so that there is no down payment required.

There are things that we can do to make it easier for people to access that collateral, and I think it’s something that we need to think about, especially in the current environment that we’re in where mortgage rates are high and in a lot of cities, properties are scarce and expensive. All of this is going to be deepening inequality.