Opinion ID: 2575999
Heading Depth: 1
Heading Rank: 1

Heading: Capitalization of Survivor Benefits

Text: Gary and Jackie both have defined benefit pension accounts through CSX. Because the parties were still married when Gary retired from CSX, Gary was required either to obtain Jackie's consent to a waiver of benefits or to designate Jackie as his surviving spouse to receive at least fifty percent of what Gary would receive at his death. Gary elected the fifty percent survivor option for Jackie and Jackie agreed to elect a fifty percent survivor option for Gary when she retired. Both pensions were divided by the trial court into marital and separate portions and, under court-ordered QDROs, the marital portions will be equally divided as they are paid. This arrangement is not contested. Gary argues that according to actuarial tables Jackie will live 12.4 years longer than he. If reality matches the tables Jackie will receive half of Gary's pension, some $1,409 per month, after he dies. She would also receive during that period half of the marital value of her own pension  representing the amounts that were previously being paid to Gary. According to an expert witness, when capitalized, Jackie's survivorship interest in Gary's pension is worth about $52,000 and her reversionary interest in her own pension after the projected date of Gary's death is worth about $13,000. Gary argues that the court should have assigned values for these interests to Jackie's side of the ledger. The trial court rejected Gary's argument, finding the eventuality of Ms. Tanghe receiving the benefit too speculative to include in the marital estate. Gary relies on the cases of Zito v. Zito [2] and Broadribb v. Broadribb [3] for the proposition that spouses are presumptively entitled to survivor benefits because they are an intrinsic part of `the retirement benefits earned during the marriage.' [4] That proposition is not in doubt. But the question presented is whether it is error to decline to value contingent survivorship benefits that are included in a QDRO. As to this question Broadribb offers no guidance. The survivor benefit there was not contingent. It was the equivalent of a vested life insurance policy [5] and it relieved the husband from the need to buy other insurance on his life. Zito is more relevant, but it does not help Gary. There we held that a QDRO dividing the marital share of the husband's retirement benefits should also have included survivorship benefits in case the husband died before the wife. [6] This is consistent with what was done in the present case. But we did not suggest that the value of the benefits in Zito should have been capitalized and credited to the wife's account in addition to being included in the QDRO. The income streams in the present case will have value for Jackie only if Gary dies before she does. This type of survivor benefit resembles a nonvested pension because one party bears all the risk that the benefit may never be realized. In Laing v. Laing, we rejected the capitalization method for nonvested pensions. [7] Since the non-employee spouse receives his or her share in a lump sum at the time of divorce, the method unfairly places all risk of possible forfeiture on the employee spouse. [8] Similarly, in the present case, the capitalization method would place the risk of not outliving Gary, or not outliving him by 12.4 years, on Jackie. Gary's argument that the survivorship benefits be capitalized is inconsistent with the QDRO method of distribution adopted by the court. The QDRO method does not require the valuation of funds being distributed. Unlike the capitalization method advocated by Gary, which requires the use of discount rates and mortality tables, the QDRO method simply links distributions to events as they occur. Gary is correct in suggesting that what may at first glance appear to be an equal division of pension benefits under a QDRO might actually be unequal because of the differences in life expectancy of the parties. That seemed to be the case in Nicholson v. Wolfe, [9] where the older husband argued that his share of the wife's pension should be capitalized and paid to him in a lump sum rather than in a QDRO because he would probably not live long enough to receive much in the way of benefits from the QDRO. We upheld the QDRO method of distribution in that case. [10] Among our reasons was the fact that the risk of not benefitting from his wife's pension was the same risk that the husband had faced during the marriage, given the parties' age differences. [11] This risk was not increased by the QDRO. Here, as in Nicholson, the use of QDROs did not alter the parties' pre-divorce chances of benefitting from their spouse's pensions. That may not be a complete answer to Gary's argument that he has gotten the short end of the division of the parties' pensions. But it is good enough, in our view, when combined with the convenience of the QDRO method and the potentially unfair risk that capitalization would impose on Jackie, to lead us to conclude that the court did not abuse its discretion in declining to capitalize the survivor benefits that Jackie may receive under the QDRO.