Retirement plans at work. A qualified family attorney should know that these accounts are split up by using a qualified domestic relations order or a QDRO. What is this? It is an order that needs to be -included in your divorce papers. The QDRO establishes your soon-to-be-ex-spouse’s legal right to receive a designated percentage of your qualified plan account balance or benefit payments. Since your ex becomes entitled to this money, he or she will also be responsible for paying the related income taxes.

Alternatively, the QDRO arrangement permits your ex to withdraw his or her share and roll the money over into his or her IRA (to the extent current withdrawals are permitted by the terms of the qualified retirement plan). What happens when your QDRO money goes to your ex without a QDRO prepared and signed by all parties, including the judge? It is treated as a taxable distribution to you. This means you owe the IRS for money that actually went to your ex. Additionally, you may also be responsible for a 10% premature withdrawal penalty if you are under age 59 ½.

As for IRAs and SEPs, you do not need a QDRO to split up your IRA accounts, but you still need to be careful and should consult an attorney. You can roll over money tax-free from your IRA to an IRA set up for your ex if and only if the transfer is called for by your divorce property settlement. Then your ex can manage his or her IRA and defer taxes until money is withdrawn. At that point, your ex-and not you-will owe the taxes. This is what you want.

So make sure your divorce papers include the following “magic” words: “Any division of property accomplished or facilitated by any transfer of IRA or SEP account funds from one spouse or ex-spouse to the other is deemed to be made pursuant to this divorce settlement and is intended to be tax free under Section 408(d)(6) of the Internal Revenue Code.”

If money from an IRA account set up in your name gets into your ex-spouse’s hands in any other fashion, you are on the hook for any taxes. Plus you will generally owe the 10% penalty if this happens before you are age 59 ½. This may all seem simple –evidently not. It is not uncommon to read every month a court decision involving tax controversies from divorce-related retirement account issues, especially IRA payouts.

If you live in a state like California where community assets are distributed 50/50, all assets and debts will be split evenly. If you live in an equitable distribution state, the percentage of distribution will not necessarily be 50/50. Whether your spouse is entitled to part of your 401k or any other assets will be dependent on other factors.

It is critically important since retirement accounts are the bulk of the marital assets that you hire a competent attorney who is knowledgeable in not only discovering such assets but how to legally separate the community funds.