If you want to go the legal route, you go back into the divorce court and tell them about this. You would be petitioning for divorce, and requesting a hearing to present evidence to the court regarding theft that's taken place during the pending divorce.

Your spouse has committed a crime and tort known as conversion. The insurance policies were owned by you, perhaps as your separate property. Even if she was the beneficiary, the policy language probably would not allow her to cash out the policies.

Now you have a black mark against you due to the IRS penalties.

While a court order finding that your wife committed theft would help a lot toward restoring your credit rating, that's more long range than the immediate problem of getting the IRS off your back.

Your wife had better give you $10,000 immediately to settle with the IRS right away. If she doesn't, you should pay it yourself, then go after her big time in the family court. Courts have a way of settling matters like this in many different ingenious ways, such as evening the score when it comes to the property settlement part of the divorce.

Clarification to my question......Wow, I am so upset over this & just looked at my question again...she withdrew WITHOUT my consent.
Thanks for the advise MaryGoldeng.

Turn her in for forgery. I didn't think the IRS could tax insurance payments they are usually taxed going in. In other words you paid taxes on the money you bought the insurance with. If not, contact the IRS and they'll get to the bottom of it. You probably need a tax lawyer.

She is also guilty of insurance fraud if you contact them I'm sure they would love to hear your story. They don't like it when someone messes with their money or their clients.

My separated spouse cashed out my life insurance policies with my consent or knowledge. She signed my name to the payments. I only found out about this, 2 years later, when contacted by the IRS that I had not paid tax on these amounts. All of the tax information went to her address (my previous home). Of course, she never forwarded this info as she didn't want to get caught. Add insult to injury.... the IRS is on my back with penaltys & back taxes! The amount just falls short of $10,000. Any suggestions? Buy the way, still cannot get her to sign divorce papers as she want more & more money!

You seem to be in some serious trouble. Dont worry; what you need to do is file a case of fraud against your spouse. Send a copy of the notice to IRS and to the tax authorities as well. Your ex-wife could be charged on account of fraud and forgery and criminality. And I am sure once everything comes out in the open, you will be able to get a divorce too. you could have our money back and sue her for defamation.

I would contact your original divorce lawyer, and a separate tax attorney. If the insurance cash value was not part of the divorce settlement then taking it amounts to theft. A good attorney can left her know that civil, and perhaps criminal charges will follow if she doesn't help you deal with the IRS!