It depends, I think. If he's getting it out of a retirement account through a QDRO you have to put it in a retirement account or you have to pay the normal tax penalties.

I'm likely to get $15k or so in the settlement with all of it coming from her retirement accounts so if I use it to pay debt I'll have a big tax bill next year.

Otherwise, I don't think it's income. But I'm no expert and owe the IRS $3,000.

Me: 47, Ds 17-13, D final 6-11
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