However, if they live in a community property state and file separately, depending on state laws, 1/2 of the 401(k) income could be subject to income allocation on each spouses separate return. Since community property laws are different in every state, in complex situations such as this which involves retirement accounts, I usually suggest seeking professional help from a tax professional (not store-front) that deals with community property.
I don't know it that applies or not since we don;t know the state where the OP lives, but if it is a community property state then filing separately could result is a much higher tax.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
