The IRS imposes a 10% penalty on early distributions from qualified retirement plans. (IRC 72(t)(1)) However, this tax generally does not apply to distributions incident to a divorce and pursuant to a qualified domestic relations order (QDRO). When the former spouse completes a rollover of the award, he or she pays no tax at that time. If the former spouse cashes out the distribution, he or she is taxed as if the distribution were additional income. The plan participant is not taxed in either case. (IRC 402(e)(1)(A))
Talk to your accountant for more and updated information and for specific advice about your tax situation.