It is becoming cost-effective to divorce in Beijing for tax purposes. The number of divorces in the first 3/4 of the year in Beijing was about 39,075 divorce suits, 41% higher than the figure for the same months last year and higher than the year-end total for last year. This growth rate is almost twice that of the world-wide figure.
Esther Fung’s article in the Wall Street Journal quoted the VP of the Beijing Marriage and Family Building Association, Li Zwei. Zwei says, “The larger-than-usual rise in divorces could be attributed to the property policies…People are thinking of their own interests, and if a divorce enables them to save on paying taxes, or to qualify to buy an additional home, who’s to judge them?”
The property tax policies Zwei refers to include a 20% tax on profits from the sale of one’s second home, opposed to a typical home sales tax of 1-3%. Single seller’s escape this tax, causing the rush to divorce. The idea is for a divorced couple to each be able to own one home in each person’s name.
This is a pretty interesting article, and a clear demonstration of a fundamental rule of economics: people respond to incentives. Tax incentives provoke a clear outcome. Since the capital gains tax on the sale of one’s second home when married is approximately 10x that of a divorced couple remaining together, rational actors very well may decide to get a divorce and still remain together. A marriage certificate is really only for legal purposes, so when a significant portion of a couples net worth and possible retirement plans could be materially affected, it is not surprising that couples actively choose to avoid these issues. Proving a unique twist, the divorce rate is rising due to government incentives rather than marital issues.
The fact that tax incentives are driving divorce rates in China is pretty surprising. People seeking to avoid the property tax that was imposed this year has exposed the loophole in the law for people whose marriages have ended. “The exceptionally fast growth is related to tax evasion by some people taking advantage of a loophole in the (new) property purchase regulations introduced by the government,” it quoted Li Ziwei , a marriage expert and former civil affairs official in Beijing, as saying. In areas such as Chongqing, where the tax has not yet been imposed, divorce rates have only grown around 7% compared to the 40% growth shown in regions where the property tax has been exposed.
Source: http://timesofindia.indiatimes.com/world/china/Chinese-divorce-rate-soars-to-beat-property-tax/articleshow/24900884.cms
I think cultural acceptance of divorce is the bigger factor at play. The shift in Chinese cultural norms and overall economic incentives surrounding marriage are enabling government actions to have abrupt changes in the divorce rate. With people moving off the farm, the economic incentives of marriage to provide laborers shifts to a more “American” one, where divorce is considerably more common. However, changing tax rates in a country where divorcees were cut off from society, would do very little to divorce rates. Likewise, it is difficult for governments to encourage people to remain married. Marriage is a cultural/romantic institution. While economic incentives do affect it, culture plays as important of a role.
http://www.cnn.com/2010/WORLD/asiapcf/10/21/florcruz.china.divorce/
This seemingly large effect that tax benefits in China seems to have on their divorce rates is also interesting to think about in the context of the issues we have in the US regarding same-sex marriage. In this case, legal benefits were heavily discussed as only one of many factors in the importance of marriage equality. It is culturally popular in the US to emphasize the importance and impact legal marriage has on the couple’s development as people and in their relationship. That the important benefits of being legally married is far more than just government tax breaks. However, looking back to the Chinese in this context, this extra importance for the relationship does not seem to outweigh the tax incentives.
It would be hard to see how a technical incentive to divorce would go over in many other countries. By agreeing to divorce in order to obtain more financial advantages, Chinese couples are saying they value their own fiscal situation more than the sanctity of their marriage. I understand it is a decision made between the two and could technically demonstrate the strength of their relationship. In countries with stronger religious believes perhaps the situation would go over differently.