Question: I was forced into early retirement, and other than our home, my 401(k) and IRA's were our biggest assets. When the court divided our marital pie last year, I was ordered to withdraw funds from my deferred compensation and IRA accounts to pay my ex-wife. When I began getting my records ready to file tax returns this year, I began to wonder who pays the income tax on the funds I withdrew - her or me. (This didn’t come up at the trial.) I'm afraid that since both accounts were in my name, I'm responsible for the federal income taxes. If so, is there anything I can do?

Answer: It is so, and you can do nothing but complain to your lawyer and other advisors who did not bring this important matter up with the Court. And while you are complaining, don't forget to bring up the state income taxes you also owe, not to mention the 10 percent early withdrawal penalty that will be tacked on if you have not yet reached age 59-1/2.

Had the court issued an appropriate qualified domestic relations order concerning your deferred compensation and required a trustee to make a trustee transfer from your IRA, the funds that your wife received could have been rolled over from your qualified accounts to her IRA without tax implication or penalty to you. Had this been done, your wife would have been responsible for the income taxes as she withdrew the funds—and for the 10 percent penalty if she withdrew before she reached age 59-1/2. We see little excuse for this basic tax issue to have slipped through the cracks.

Question: My estranged husband, age 55, and I, 52, are in the midst of a marital controversy. As part of the court's early settlement process, I met with my lawyer, my husband, his lawyer, and two other lawyers who made up the early settlement panel. There are two major assets to be divided: the $50,000 profit from the sale of our $150,000 house, and $50,000 from a profit-sharing plan I contributed to during the course of our marriage. The panel recommended that I take the $50,000 from the profit-sharing plan and my husband take the entire cash profit from the house. I told my lawyer that the value of the $50,000 profit-sharing plan is worth significantly less than $50,000 liquid cash because of the tax liability. Am I "off my rocker"?

Answer: No, you are correct. Since we assume there will be no capital gains due on the house sale, that $50,000 is post-tax money and can be spent immediately. On the other hand, since the profit-sharing plan is qualified money, if you decided to take it down to spend it, you would be hit with both state and federal income taxes plus a 10 percent penalty since you have not attained age 59-1/2 . Based on what you report, the panel and your lawyer should consider the taxation issues because their suggestion gives you the short end of the stick. An equal division, in our view, would be for each of you to receive $25,000 from the house sale, and each of you get $25,000 from the profit-sharing plan using an appropriate qualified domestic relations order.

Question: I am a divorced woman and receive alimony as my only income. Can I set up a deductible IRA using my taxable alimony to offset taxes? I am 47 years of age and have no retirement.

Answer: As we understand the rules, the answer is yes. So long as you have taxable income from employment or alimony, you can create a traditional IRA as long as you do so before reaching age 70½. The contributions should be fully tax-deductible to you so long as you don’t participate in an employer-sponsored retirement plan. If you reach age 50 before or during the year, you are permitted to play “catch-up” with your retirement savings by contributing extra amounts to your IRAs for that year. The “catch-up” provisions apply to anyone who meets the age requirement and is otherwise eligible to contribute to an IRA.