THE SUPREME COURT has refused to hear the appeal of Jacqueline Jarrett, the Illinois woman who lost custody of her three children solely because she was living with her boyfriend. Walter Jarrett, the children's father, went to court claiming that his former wife was violating Illinois' antifornication statute and that his children were being brought up in an immoral atmosphere. He found a judge who agreed with him and won custody. The children, it is worth noting, were never asked where they wanted to live, nor were they ever interviewed to establish what harmful effects their home life might be having on them.

Yet, with virtually no information about the Jarrett-boyfriend household, the Illinois Supreme Court upheld the lower court judge's decision and reached the conclusion that Mrs. Jarrett's violation of the Illinois antifornication statute showed a "disregard for existing standards of conduct [that] instructs her children, by example, that they, too, may ignore them . . . and could well encourage the children to engage in similar activity in the future."

And this is the thinking that the U.S. Supreme Court let stand by a 6-3 decision handed down Monday. Since an estimated 1.1 million people are living together out of wedlock these days, and an estimated 25 percent or more of these households include children, the impact of the court's action should be heard throughout the land. Is it really as bad as it sounds?

Leonard L. Loeb, past chairman of the American Bar Association's family law section, sees the court's action first as a signal that it will be more and more reluctant to review the many custody issues that are coming before it from the 50 state courts. "I have a feeling what they're saying is we are not going to second-guess the law of the 50 states. We may disagree with the conclusions the states came to as far as awards of custody, but those are state court issues and we are not going to review them in the Supreme Court or in the federal courts."

But the state trends, he points out, have been to award custody on the basis of who the courts think would be the better parent. "There are states where custody has been awarded to a mother living with someone and cases where a father has been living with someone as well. They've gotten custody.

"Ten or 15 years ago, the moral behavior of the parent was a prime consideration in the award of custody, and an 'immoral mother' in a custody dispute would not have gotten custody. What is happening is that new concepts are evolving where morality is one of the factors to be considered rather than the factor. So the [Supreme Court] decision is not a shocking decision, just a conservative decision consistent with the law of the land as it was 12 or 15 years ago.

"If things go on the way they are, I think the Jarrett decision will be an unusual state court decision. There are very few decisions we're hearing about now based on the morality of the parties. Now, as opposed to five or six years ago, I think a lesbian mother can make a pretty good case in most state courts.

"This Jarrett case is another landmark in the road highlighting the changes that are taking place in our society. Twenty years ago that decision wouldn't even have been noteworthy. Today it is newsworthy and important because our society is changing, and a substantial number of our society are outraged at the decision. Whether it's right or wrong, I know it's not the last word.

"I would say that if the people of Illinois are offended by that decision of the court, that isn't the end of the story. They can tell their legislators that you cannot discriminate in the award of children according to the life style of the parents, that they have to consider all factors." A number of state legislators, such as Wisconsin, have passed laws mandating that custody awards cannot discriminate on the basis of sex but must be determined on the basis of the best interest of the child. And, Loeb points out, legislatures were responsive to popular pressure when they passed no-fault divorce laws.

Despite all the custody fights we've been hearing about, such as the controversial Jarrett case, most adults adjust relatively well to divorce, says Loeb, who makes his living as a divorce lawyer. But he puts down in the most absolute terms the popular folk wisdom that when a marriage is on the rocks, you can divorce for the sake of the children.

"When it comes to the minor children of divorce," he says, "they pay the price. To a child, it's like cutting off a leg. Almost any two parents are better than one." The trend in custody disputes, Jarrett excepted, may indeed be to determine what is in the best interest of the child, but if people are so interested in that, Loeb has come to a conclusion based on studies he has read and families he has seen that parents might want to add to their considerations.

"Divorce," he believes, "is against the best interests of the overwhelming number of children who are involved."