We are frequently asked questions about divorcing parties’ life expectancies. Often clients remark along the lines of “she’ll live longer than me because she’s female… so….” While it is true that females, on average, live longer than males, retirement plans are not permitted by law to use gender specific life expectancy tables when calculating benefits. This holds true for both Qualified Domestic Relations Order (QDRO) purposes and Eligible Domestic Relations Order (EDRO, a state or municipal order in Michigan) purposes.
When valuing a pension, however, one should not turn a blind eye to gender or health of the parties. These factors can affect predictions. However, I want to reiterate my critique of pension appraisals. Mortality tables are based on the law of large numbers. They estimate life expectancies and are intended to be accurate in the aggregate. For example, an insurance company selling life insurance may rely on certain mortality tables and if they sell a sufficient number of policies, the tables could be quite useful and accurate. However, when dealing with a small sample size (in the case of a divorcing party, one), mortality tables may not be accurate. They are better than simple guesses but they may turn out to be way off. Combined with the fact that other assumptions are required to be made to value a pension benefit (interest rates, taxes, commencement age and many others), valuations tend to be only partially scientific. Accordingly, we strongly recommend against reliance on pension appraisals or valuations and almost universally recommend division by QDRO or other division order.
When explaining the difference between a valuation and division by QDRO, we often use a “loaf of bread” analogy. The valuation concerns the size of the loaf of bread. Generally, the division of a retirement asset is independent of the size of the loaf. It simply seeks to divide the loaf, often down the middle.
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