May-December Love Brings Financial issues

BOSTON (TheStreet) -- The hazards of a May/December romance go far beyond raised eyebrows or having to endure a waitress greeting your "son" or "daughter." There is also a whole set of financial issues.

Retirement planning is one area where an age gap can pose problems. In couples with partners of roughly the same age, and nearing retirement together, saving and spending patterns are likely to be in sync. With age differences comes a different timeline and set of priorities. An older partner may be winding down their spending at a far greater pace than the younger.

"You are going to have issues relating to cash flow as it relates to these individuals approaching retirement where there is a 15- or 20-year age difference, even a 10-year difference," says Mike McGervey, CFP, president of McGervey Wealth Management in North Canton, Ohio. "You are basically going to be on one income for that period of time, which can put a demand on what is typically some of the largest earning years for most traditional couples, where they are really packing most of their savings in for the 10 years before they officially retire."

It is common for an older partner in a May/December romance to have had a previous husband or wife. If the younger partner has also moved on from a past significant relationship, there are multiple families being melded. The older party may have already planned on being down with supporting their kids and paying college tuitions, only to find the process starting all over again with the new family.

"They thought this was off the plate, and they were walking into retirement in a position where they could be financially independent," McGervey says. "But having a spouse who is much younger and has a family can change that picture quite a bit."

Life insurance and estate planning issues also get more complex.

A younger partner might face a hardship in the event an older breadwinner dies prematurely. In other cases, the earning power of the younger partner may be a lifeline for their older mate.

In a blended family, ensuring that post-death assets are properly distributed can be a source of tension.

" One of the spouses is usually the one who is bringing the majority of the assets to the table," McGervey says. "But even in the case where we have equal assets brought by each family member, there is still a lot of discussion around making sure the assets they brought to the table go to their lineal decedents rather than going to those of their spouses."

This becomes especially tricky if there's a remarriage after the passing of a partner.

McGervey suggests the establishment of a qualified terminable interest property trust.

"This type of trust would make income available to the spouse to cover their health, education and maintenance support," he says of QTIPs. "There may also be some provisions for distributions that are permitted. They can be very comfortable and, upon his or her death, the remainder of the trust -- and most have the ability to retain their principal value -- then goes to the designated descendants."

No matter how loving and supportive a couple can be, their outlook can change. "That makes a formal, binding trust extremely important," McGervey adds.

"It is so very common that you get a couple that has been together for five or 10 years," he says. "They love each other, can do no wrong by one another, and they just say, 'I'll always make sure your kids get their share.' Life and money just have a way of changing things. Maybe the older spouse passes away and the younger one finds somebody new. There is nothing that prevents them from falling in love with somebody else and eventually the wishes of the one who created the wealth are never carried out. It is so easy to have happen without the use of a proper trust document."

McGervey also suggests that these couples strongly consider a long-term care life insurance policy. As the older spouse ages, the younger could otherwise find their assets slashed as they are forced to cover the hundreds of thousands of dollars needed for such care.

Merely investing the cost of a premium over 20 to 25 years, even when such costs can be upward of $150-$200 a month, may still cover just a fraction of one year's worth of institutional housing and care, he says. And the buying power of those savings are diminished by the high rate of medical inflation.

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.

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