A split financial decision: the Johnsons have been handling their finances separately for years. Will it work in retirement? (Family Finances).

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 yon 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 ENTEBPRISE set her up with Mark A. Mitchell, a registered advisor with AXA Financial Advisors (www.mitchel Landeompany.net) in San Juan Capistrano, California. Mitchell does not recommend married couples having separate finances because it complicates family and estate planning.

[] Develop an estate plan--for the both of them. Perhaps the most immediate issue for the Johnsons to correct is preparing wills for themselves. Both Art and Laura have children from previous marriages. Any plans Laura has of using the couple's joint assets will tie scuttled without a will because any assets go directly to probate, where the state will distribute them as it sees fit. To guard against fighting over the division of assets, "they need to sit down and decide among themselves what they want done with the property and the division of assets, then get a lawyer to draft the appropriate trust and wills so that their joint and individual wishes are carried out," says Mitchell.

[] Develop an estate plan for Laura's parents. Since Laura has siblings, her parents need to set out a plan tot the distribution of their home and other assets, too. This way, the assets won't be lost to the state, and she may find out which assets or property she may receive in the future.

[] Purchase long-term illness protection. The Johnsons must buy insurance that will cover Laura and Art if they are severely impaired. This includes nursing home care, in-home care, or any medical expenses that regular healthcare insurance does not cover. Long-term illness insurance will cover those expenses for a fraction of the cost of waiting to liquidate assets and paying regular rates.

[] Eliminate debt, Mitchell says that with her income, Laura should pay off her debt within a year. And as far as inheriting debt: "An estate planning attorney could give them an accurate understanding of which items they own that might revert to each other's responsibility in the event of one or the other's death," says Mitchell.

[] Seek tax exemptions. Laura may be able to write off some of her expenses tot her consultancy business on her tax returns, but she'll need to consult a tax professional.

Mitchell declined to give her advice on how to restructure her 403(b) plan or what to do with her $8,000 in savings for $2,000 contest winnings until most of the above measures are taken (See "Yours, Mine and Ours." B.E. October 2001 for financial advice). "She could have a great investment plan in place, but it, won't be enough," he says. "Without the proper protection, all her assets could erode due to some unforeseen event, such as sickness, which could wipe everything out."

Financial Snapshot: Laura Johnson

        HOUSEHOD INCOME

Gross Income          $60.000

            ASSETS
403(b)               $134,600
Checking                6,000
Savings                 8,000
Annuity                 6,000
Other (land)           20,000
TOTAL                $174,500

LIABILITIES
Mortgage             $175,000
Credit Card Debt        7,000
Car Loans              10,000
Taxes (house)           1,932
Taxes (land)              200

TOTAL                $194,132

NET WORTH            -$19,632