Question: My wife and I are hanging it up after 18 years of marriage and three children. She worked while I went to graduate school and gave up the last two years of her college education. She is 38 and without employable skills; I am 40 with a pretty bright future. She wants to go back to college, but I don’t have the cash to fund this and also support her and the children, even though I agree that she is deserving. We have built up a nice nest egg in my IRAs and 401 (k) that, with the house, are going to be divided, but I can’t pay her alimony, support the children, and also pay for her to finish college and a master’s degree – a four- year commitment.

Answer: Since you have a number of high-earning years ahead of you during which you will undoubtedly continue to contribute to your retirement, we suggest that you consider increasing the portion of your pension 401 (k) and IRA that will be rolled over to your wife by an amount that will cover her educational expenses. Then your wife, as a taxpayer, will be able to take distributions from her individual retirement plan (IRA) to pay her expenses for "qualified higher education" without incurring the 10 percent penalty for early withdrawals that are normally associated with withdrawals before age 59-½.

Since she will be paying taxes on these IRA distributions as they are withdrawn, along with the alimony you will be paying, a certified public accountant should project what your wife will need, after taxes, to complete her education over the next four years. In this way, the payments will be "painless" to you because they will be made with pre-tax dollars on which you have not paid income taxes. Plus, the payments won’t reduce your current income.
The option to make withdrawals from IRAs to pay for “qualified higher education” expenses applies not only to a taxpayer and his or her spouse, but also to children and even grandchildren.
The prerequisites include that the institution be “eligible” (that is, a college, university, or technical school as defined by the Higher Education Act of 1965) and that the expenses be "qualified higher education expenses" (including tuition, fees, books, supplies and enrollment-related equipment).

As a part of the separation process, planning to help your wife get educated is essential in the short run because otherwise, you and your children would be losing the benefit of her skills and earning capacity, thereby causing you to pay more alimony for a longer time. In the long run, because women generally outlive men, your wife will have to make her savings and retirement last longer because it is very difficult these days for two households to live on one salary.

At your ages, life insurance is a necessary ingredient for both of you because if one of you dies prematurely, it would otherwise be literally impossible to even start to make up the economic loss. For this reason, we suggest that each of you purchase not less than $500,000 in coverage which, on a 20-year term basis, would not be expensive at all. The coverage on each of your lives could be owned by a trust for the benefit of your children with each other or an independent person as trustee.