Dividing IRAs tax-free in divorce

Generally, the division of property, including cash, between divorcing spouses has no immediate federal income or gift tax consequences. Such transfers are considered tax-free gifts between the spouses. However, the tax-free transfer rule does not apply to transfers of balances in IRAs. If an IRA owner withdraws funds from his or her IRA and gives it to his or her spouse (or anyone else for that matter), the withdrawal is taxable to the IRA owner and tax-free to the receiving spouse (or whoever receives the distribution).