It depends. The divorce settlement may provide the clarity necessary. If the funds were withdrawn from your 401(k) to pay your 'X', and it was not transferred to a retirement account such as an IRA, then you will be responsible for the tax on the distributions assuming your divorce decree does not stipulate who will pay the tax on the distribution.
You may be paying the 10% early withdrawal penalty on top of your regular income tax on the distribution if you are below 55 years of age (if you are retired). Withdrawals from a 401K before age 59 1/2 are subject to a 10% early withdrawal penalty. In addition, the withdrawal will be reported as income on your tax return. If it happens before the divorce is final, the owner (you) is responsible for the taxes and penalties unless you negotiated it.
Most Common Scenario: Transferring funds from a 401(k) account in cases of divorce is known as a 'qualified domestic relation order' (QDRO). The QDRO is a court order allowing the transfer and distribution of account funds from the 'participant' spouse to the 'non-participant' spouse.
If you utilize a QDRO to divide the 401(k), the non-participant spouse can choose one of several options depending on the rules of the plan:
- Direct rollover of funds to the non-participant’s new or existing individual IRA; or
- Take a partial or full lump sum distribution prior to rollover, subject to regular income tax but without a 10% early withdrawal tax penalty.
@tjvillanueva
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