The seminal (economist’s!) answer to this question has been offered by my old teacher in grad school and my colleague till a few years ago, Kathy Spier, in her paper “Incomplete Contracts and Signaling”. As her title suggests, her core idea is based on signaling: an informed party making an offer in a game signals his private information via the offer. An offer that carries a negative inference may not be made. Kathy’s model is quite complex but it’s central logic is captured in a passage from her paper:
A fellow might hesitate to ask his fiancée to sign a prenuptial agreement…. because to do so would lead her to believe that the quality of the marriage – or the probability of divorce – are higher than she had thought.
In the new century, roles are reversed – the wealthy partner might be female and the poor one male. If there is no pre-nup, the man can extract a large fraction of his ex-wife’s wealth after a divorce. In that situation, to signal his love, the man should offer to sign a pre-nup that gives him none of his ex-wife’s fortune. If he is confident the marriage will survive, divorce is impossible anyway , so why worry about income in an impossible event?
Alas, as the poets have long told us, the path of true love does not run smooth – the most well-intentioned and loving couple can find their marriage has hit the rocks. Then, there will be much regret and perhaps desperate, legal action to extract enough cash to live in the style to which one has become accustomed.
And so I turn finally to this sad case in the British courts:
When Katrin Radmacher and Nicolas Granatino married in 1998, she insisted it had been for love, not for money. That was why the wealthy German heiress had ensured that her banker husband signed a prenuptial agreement promising to make no claims on her fortune if the marriage failed. It was, she said, “a way of proving you are marrying only for love”.
Once the love had gone, however – the couple separated in 2006 – the fortune remained, and Granatino, by then a mature student at Oxford, decided to challenge the prenup, which they had signed in Germany before marrying and divorcing in Britain, arguing it had no status in English law.
But Granatino lost.
I’m sure a research paper can come out of this: two-sided incomplete information, two-sided signaling and optimal contracting…..I’m too busy keeping my marriage alive to have the time to write it.