Why is she paying tax on it at all?  Was there a QDRO?  Have you seen it?  Did the employer issue a 1099 to her because the company is controlled by the ex and his friends?  Did she pay SE tax on it?  Most of the DC plans I have seen, issue a W-2 to the employee.  They may have done it right, but with this much involved, I would be careful about "assignment of income" issues.