A Split Financial Decision

The Johnsons have been handling their finances separately for years. Will it work in retirement?

When it comes to her and her husband’s finances, Laura Johnson is convinced “separate” is the way to go. To remain happy, equal partners in what is the second marriage for both, she and her husband, Art, agreed to separate their finances as much as possible. The arrangement has worked for 26 years.

Together, they have a joint account from which they pay household expenses, including insurance premiums, taxes, repairs, the $175,000 remaining on their mortgage, and taxes on a small lot of undeveloped land in Clear Lake, California, that’s worth about $20,000. They also share food, vacation expenses, and other costs.

“When you get married, you bring to a relationship certain values and different things that you enjoy doing that you don’t want to give up,” the 58-year-old school administrator, who retired in June, explains. “My husband is very much into fishing and boating, and that’s real expensive. I don’t want to spend my money that way. So splitting things this way, I can take the majority of my money and do what I want, and he can take his and do what he wants,” she says.

What Laura wants to do is make sure that she can maintain her current lifestyle now that she’s retired. Unfortunately, the Richmond, California, couple has mismanaged their combined $138,000 income, creating significant debt and other financial obligations. She has $7,000 in credit card debt and a $10,000 balance on a car loan. She estimates Art’s debt, which includes credit cards, cars, and a boat, could be substantially greater than hers.

Added to their debt is the responsibility for Laura’s parents, who live in their own home in Oakland, California. Even though she has other siblings, “if for some reason they need some support, I want to be able to assist them so that they won’t have to struggle, ever,” she says.

Laura also wants to contribute regularly to a custodial account to finance her 13-year-old grandson’s college education. And in the near term, she wants to help send him to private school.

Worried about inheriting her husband’s debt (if he should become incapacitated), plus her other family obligations, Laura is proactively seeking a plan of action. Currently, she collects about $5,000 a month from her pension, which she uses to pay her bills and support her lifestyle. In August, her 403(b) retirement account had a balance of about $133,000, which she hopes to continue growing over time. She has about $8,000 in a regular savings account, and in an emergency, she believes several life insurance policies and selling off the home will provide some relief. Luckily, she secured a consulting job in September that will keep her earning income for now, but eventually, she prefers not to have to work.

THE ADVICE
To give Laura guidance on reaching her retirement goals, BLACK ENTERPRISE set her up with Mark A. Mitchell, a registered advisor with AXA Financial Advisors (www.mitchel landcompany.net) in San Juan Capistrano, California. Mitchell does not recommend married couples having separate finances because it complicates family and estate

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