I am a Canadian citizen, my ex-husband who works in the US and will remain there, as part of the divorce settlement, will be assigning a portion of his 401K to me. Will the funds be subject to withholding tax when they leave the country. Are there any further tax consequences beyond that. Can I leave the funds in the US and not be subject to tax until I retire?

The taxes come in if there is a withdrawl. I doubt you can just leave it where it is. But you could transfer it to a qualifying account to avoid current taxation. You will need to follow the IRS rules for doing so as they seem to change often.

The bottom line is if you take it as a settlement and withdraw your portion then current taxes will be owed. If you "rollover" the funds into a qualifying account then there shouldn't be a tax penalty until you actually withdraw funds (at retirement or under qualifying conditions).