Divorce and the division of retirement or tax sheltered accounts

Question:

I have been divorced for over two years. I recently received notice from the IRS that I owed additional taxes on a 403b that I was court ordered to distribute to my ex wife. Since it was only in my name, I only received notice on the back tax owed. Total due was $10,000.

When I withdrew it to give it to her, I ordered most of it to go to federal withholding. She got the balance. Now I owe taxes on the money they gave her. Since nothing was in her name do I have any recourse?

 

Answer:

First let me preface my answer by stating that I am not licensed to practice in the state of Kansas, although Cordell & Cordell does have attorneys who are licensed in Kansas that would be happy to discuss your case with you.

Usually, the division of retirement or tax sheltered accounts are non-taxable events when they are divided or transferred due to a divorce. However, there are special steps that need to be taken to ensure that a taxable event is not caused. This is usually accomplished using a Qualified Domestic Relations Order (QDRO). You may want to talk to the company that administered the 403B to find out why the taxable event was caused and if there is anything that you can do to reverse it.

You may also need to speak to an attorney who specializes in tax law to find out if there is anything that you can file with the IRS to avoid this tax liability. Finally, you should speak to a domestic relations attorney in your jurisdiction because you may need to ask the Court that since she received the benefit from this withdrawal she should pay the tax consequences.

 

Jason Bowman is an attorney in the Louisville, Kentucky office of Cordell & Cordell. He is licensed in the states of Kentucky and Texas. He received his Bachelor of Science in Business from the University of Louisville, and received his Juris Doctor from Texas Wesleyan University.

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