(MONEY Magazine) – When her 18-year marriage unexpectedly broke up two years ago, Mary Gillilland, 43, was thrown into an emotional maelstrom that left her little energy to worry about the economic repercussions of her divorce. Today her ready smile and bright manner suggest that emotionally the worst is over. Financially, however, she has barely begun to recover. To be sure, the full-time homemaker's $68,000-a-year settlement sounds lush, especially for Bettendorf, Iowa, a Davenport suburb where Gillilland lives with her three children, James, 13, Julie, 11, and Brian, 8. But her ex- husband must continue to make these payments for just nine more years. And Mary, who has not held a job since 1976, is also struggling to pay off some $30,000 in legal fees and other post-divorce debts. As a result, she is deeply concerned about her future security. Says Gillilland: ''I don't want to reach my mid-fifties with no money and no prospects.'' Her ex-husband, an allergist in Davenport who earns nearly four times Mary's income, has joint custody of the children. But most of the expenses of raising them fall to her. Instead of child support, Gillilland's ex-husband pays her $3,500 a month in alimony, deductible for him and taxable for her, and an untaxed $2,000 a month as her share of communal property that was allotted to him. Gillilland's expenses eat up nearly all of this money. Her monthly outlays include about $1,300 for the mortgage on her $140,000 four-bedroom home and $1,550 for food, utilities, maintenance and insurance. Liberal spending on entertainment and clothing amounts to another $800 or so a month. ''We've continued to live much the same way we did before the breakup,'' she explains. ''The problem is, there isn't much money to spare, and I owe so much.'' Gillilland does not have much in the way of assets to help. Her holdings consist of $20,000 in a government bond fund returning 8.9%, $10,000 in a tax- exempt municipal bond trust yielding 9%, and two 8.2% zero-coupon Treasury bonds that will pay her $6,000 when they mature in 1999. She also owns three automobiles, together worth about $27,000. To solve her budget squeeze, says Steven Weinstein, head of personal financial planning at Arthur Andersen & Co. in Chicago, Gillilland should return to work. ''If she continues to live off her settlement alone, inflation guarantees that she will run short of money even before her alimony payments stop,'' he warns. If she supplements her alimony with earnings, however, she can not only meet her current expenses handily but also save money to help her through the lean years that will begin when her ex-husband's financial obligations end. Gillilland's best career path is radiography -- the field that she left 13 years ago to start a family. The high demand for X-ray technicians in Iowa ensures that she can easily find a job, which should pay about $25,000 annually. The planners urge her to seek out employers that offer comprehensive retirement benefits such as a generous pension and tax-deferred savings programs. The tax-free compounding of her earnings in these plans will boost her investment returns. And contributions that she makes with pretax income will provide her with a federal tax break. ''Gillilland needs the shelter because the alimony she gets puts her in the 28% tax bracket, higher than most people at her salary level,'' says Jeffrey Levy, a planner with Independent Financial Services in Garden City, N.Y. In addition to taking advantage of employer-provided benefits, Weinstein recommends that Gillilland cut her expenses by 15% to free more cash for savings and investments. One expense she could easily eliminate is interest payments. By selling her two most expensive cars, she can net about $25,000, which will clear nearly all of her debts except her mortgage. Gillilland could save $5,000 more a year by refinancing her house with a new 30-year, $100,000 loan at a fixed 10.5% rate. But Weinstein advises against this step. Refinancing, he points out, means that after her settlement payments end, Gillilland will still be making mortgage payments -- an expense she won't be able to meet on her salary alone. Therefore, she would have to . tap her retirement nest egg. Eventually, he says, she would run out of money (see the table on page 195). But if she keeps her current mortgage, which has eight years to run, she will have paid off the entire loan by the time her alimony payments stop. Instead of refinancing, Weinstein suggests that Gillilland negotiate with her ex-husband on the children's expenses. ''Otherwise, she must simply cut back on her life style,'' the planner says. Jeffrey Levy advises Gillilland to invest the savings she will have from cutting expenses, plus the portion of her salary that she does not put in savings plans at work, in annuities. Earnings in these insurance contracts will compound tax-free until she retires, at which time they will provide her with a regular income. Over the next nine years, Gillilland should be able to put about $135,000 into annuities, which, at an average annual yield of 8%, would triple her capital by age 62. Says Levy: ''That would buy her roughly $3,000 a month for life.''

BOX: Save now so you can spend later

Even if Mary Gillilland, 43, saves all of her after-tax salary until 1997, when her $68,000-a-year payments from her ex-husband will end, spending at her current rate will deplete her capital by the time she retires at age 62. As the accompanying story explains, refinancing her house to reduce her mortgage payments won't help much. Therefore, she must cut her spending by 15% -- or roughly $12,000 a year -- and pay off her present mortgage by 1996 to accumulate the capital she needs for a comfortable retirement.

CHART: NOT AVAILABLE