Pension valuation is one of the trickiest calculations in a divorce settlement. Nobody can predict the future so attorneys must make assumptions to determine what the pension is worth. One of the most important assumptions is life expectancy. The longer the pensioner lives, the more valuable the asset. Divorce software for attorneys tries to simplify this by giving attorneys a choice of life expectancy tables, but which one should you use?
Life Expectancy Tables
Although none of us know when we are going to die, actuaries earn a living trying to make an educated guess. Several actuarial tables exist that predict a person’s current life expectancy based on a variety of factors such as current age, gender, and even profession. The most common tables used in divorce software are UP-94 and RP-2000.
The Uninsured Pensioner 1994 (UP-94) table was developed based on records from the Social Security Administration and the Civil Service Retirement System. This table was updated in 2000 at the request of the Treasury Department in response to new legislation, and the new version is called the RP-2000. The new table looked at a broader population and is generationally adjusted (explained below) in an effort to create a more accurate table. The RP-2000 is typically the table of choice but the UP-94 might be more accurate for white collar workers.
Gender And Generations
Another consideration when selecting a table is the effect of gender and generation. It’s well known that women tend to live longer than men. Gender specific tables have separate columns to reflect this. Unisex tables lump the population together so will give slightly lower results for women and higher for men.
Medical science extends lives. A baby born today is probably going to live longer than a baby born 50 years ago. Generationally adjusted tables use an algorithm to estimate that difference and create a more accurate projection. Some feel these tables are more accurate than basing current life expectancy on previous generations, while others feel the math involved amounts to a wild guess.
Which Table Should You Use?
Assuming your settlement statement software gives you a choice, which table is best? The short answer is the table that gives your client the best settlement, but the real answer is more complicated than that. The opposing attorney is going to be thinking the same thing and so is going to use whatever table is most advantageous. What’s important is not as much the table you use, as the fact you have data to back up your settlement claim.
A good option is to prepare several estimates, each with different assumptions, to give you more negotiating power. You will of course lead with the offer that’s best for your client but if the other attorney objects, you can whip out another offer that might be more palatable.
It’s not enough to simply present a settlement; you need numbers to back it up. The advantage of legal practice management software is that it gives you the tools to support your assumptions with hard data. Make sure you are using the best tools to give your clients the best representations.