If you are getting a divorce or contemplating a legal separation, and you both have retirement accounts, you may be required to share these assets. The judge may even award both accounts to one party. Whether you have to share or are being awarded these funds, you need to know the rules that govern this type of transaction.
If you and your spouse don't delineate whether you have an IRA or a qualified plan, the court may simply attach a label that isn't correct. 401Ks are split by the court under a Qualified Domestic Relations Order. If you don't specify, chances are he will just label you're a QDRO and different rules apply to these.
When dividing an IRA, you may want to ensure that it is treated as a transfer incident to divorce. This makes it non-taxable under the laws of Texas. The funds will simply be treated as a rollover or a transfer.
If you have transferred some of your IRA to your soon-to-be ex-spouse, he or she will have to pay any taxes when they take money out because it was treated as a transfer incident in the divorce.
If you don't label it a transfer incident, you both end up paying taxes, so you may want to get an attorney involved early who knows the ins and outs of this type of labeling and transfer.
Getting a divorce is one of the very few exceptions to the protections that are offered under IRAs and 401ks for seizure by creditors or by lawsuits. Divorce and legal separation decrees make it legal to allow attachment of assets in this account by ex-spouses if it is labeled as a QDRO.
If you have correctly reported to the courts and the IRA custodians, then this will be a tax-free transfer as well. The receiving spouse can simply rollover the funds to his or her account.
Calling in a lawyer who can answer your questions and assist with this can be a big help. They will be able to put their experience to work on your behalf.
Source: Investopedia, "Divorcing? The Right Way to Split Retirement Plans," Mark P. Cussen, accessed May. 22, 2015