Seoul High Court 2011Nu34414 (25 April 2012)

early 2011west0350 ( October 31, 2011)

Since the ownership is acquired through division of property, the time of acquisition of the former spouse should be considered as the time of acquisition.

The property division is deemed to have been performed by mixing the in-kind division and the method of division by monetary payment with the specific method of the division of property. As such, it cannot be deemed that the transfer of apartment ownership is the payment in substitution for the payment of the debt division, the time when the former spouse acquired

Article 98 of the Income Tax Act

2012Du10901 Revocation of disposition of imposing capital gains tax

XX

Head of Yongsan Tax Office

Seoul High Court Decision 2011Nu34414 Decided April 25, 2012

September 13, 2012

The judgment below is reversed and the case is remanded to Seoul High Court.

We examine the grounds of appeal.

1. The property division system under Article 839-2 of the Civil Act is substantially applicable to the division of co-owned property in light of its legal nature, the object and scope of division. Therefore, the legal principle as to the division of co-owned property should apply mutatis mutandis. The division of co-owned property is legally deemed to be the exchange or sale of shares among co-owners. However, in reality, the ownership form is changed as it concentrations on the specific part acquired by the division of co-owned property, the right which is limited according to its share ratio, and continues to exist only in the specific part. Thus, it cannot be deemed as the transfer of property subject to capital gains tax under the Income Tax Act. This legal principle also applies to the transfer of real estate under the name of one spouse to the other party by means of division of property pursuant to the divorce. In addition, in the case of transfer of real property transferred after the division of property, the acquisition value should be determined at the time of its initial acquisition, not at the time of the transfer of property transfer due to the division of property (see, e.g., Supreme Court Decision 96Nu14264.

2. (1) According to the reasoning of the lower judgment, the lower court determined that the Plaintiff’s acquisition of the instant apartment is not a division of property, but a payment in kind, based on the following circumstances, as to the transfer income tax following the transfer of the ownership of the instant apartment to a third party on January 23, 2009, which was registered under the name of thisA on July 1, 2004 by the Plaintiff, the former husband, as the cause for the division of property on July 23, 2004.

① In the Seoul High Court case of 2007Reuu1715, the appellate court of this case’s claim for divorce and division of property of the Plaintiff and thisA, the conciliation was concluded on January 25, 2008. The first part of the conciliation clause provides that “The amount that thisA has to pay to the Plaintiff shall be determined by deducting the amount of property division of KRW 00, solatium 00, and support fees of KRW 000,000, which is the sum of KRW 000, and KRW 000,000, which is the amount to be paid to the Plaintiff, shall not be real

(2) In the latter part of Article 13(1) of the Adjustment Clause, "property division shall substitute for the transfer of ownership of the apartment of this case", and it shall be clearly defined that the transfer of ownership of the apartment of this case is payment in kind for the debt of division of property as provided in the first part of

(3) Paragraph (2) of the conciliation clause provides that “AA shall obtain the maximum amount available for the instant apartment from the Plaintiff as security, and pay the Plaintiff the amount of the instant apartment.” This is based on the premise that thisA is liable to pay the Plaintiff money in division of property.

(4) Article 3(3) of the conciliation clause provides that “AA transfers the ownership of the instant apartment to the Plaintiff as division of property within 14 days from the date the conciliation of the instant case is completed.” However, it may be deemed that Article 3(3) of the conciliation clause specifies the timing for performing the payment in kind as stipulated in the latter part of paragraph (1) of the conciliation clause, and also clarify the meaning of the payment in kind for the obligation of property division, not for the consolation money and the payment in kind

(2) Furthermore, the lower court determined that the Defendant’s disposition imposing the transfer income tax of this case, which calculated the transfer margin on July 23, 2004, based on the acquisition price of the apartment of this case, should be determined on June 1, 2009, on the ground that the cause of the Plaintiff’s acquisition of the apartment of this case is not a division of property but a payment in kind, and thus, the Plaintiff’s acquisition of the apartment of this case ought to be determined based on the acquisition price.

(3) However, we cannot accept the above judgment of the court below.

The following circumstances are revealed according to the facts duly established and the records of the lower judgment and the first instance judgment partially accepted by the lower court.

① On January 25, 2008, at the appellate court of the claim for divorce and division of property against thisA, the conciliation was concluded that thisA shall transfer the ownership of the instant apartment to the Plaintiff as division of property (Article 3). Accordingly, the registration of transfer of ownership in the name of the Plaintiff on the instant apartment was made on the ground of “property division on January 25, 2008.”

② On August 22, 2007, the Seoul Family Court Decision 2005Dhap4062, which was the first instance court’s judgment on divorce and the claim for division of property, did not have any property subject to division of property against the Plaintiff regarding the division of property. This case’s apartment and loan 10 real estate prices, including the instant apartment and loan 8 parcels of land, etc., as the property subject to division of property, are equivalent to 000 won in total and 000 won in positive property such as stocks, etc., and net property is recognized as 00 won in total, and this case’s apartment was ordered to pay 2.4 billion won in property division to the Plaintiff, which is equivalent to 20% of the above net property. This case’s apartment is recognized as the property acquired by the married couple as the property subject to division of property.

③ In the first instance court of the above divorce and the claim for division of property, thisA argued that only the remaining real estate and the shares except the apartment of this case should be excluded from the object of division of property on the ground that they are unique property of thisA (the first instance court of the above case against this point, the remaining real estate and the shares of this case, excluding the apartment of this case, among the property of this case, shall be assessed as the property of thisA, which are formed based on the inherited property of thisA, or donated by thisA, but the wife shall be included in the object of division of property on the ground that the Plaintiff, who is a wife, contributed to preventing the reduction of the above property while raising his/her child and taking

④ According to the conciliation clause established in the Seoul High Court case 2007Reuu1715, the appellate court on the judgment of the first instance court, the conciliation clause (hereinafter referred to as the “Seoul High Court”), the part of the conciliation clause (1) merely stipulates the amount of division to be paid by thisA to the Plaintiff as KRW 000 on January 4, 2008, and thereby, this case’s apartment is assessed as property division in the latter part of paragraph (1) of the conciliation clause and this case’s apartment is assessed as KRW 000, and this case’s apartment is assessed as property division, and this case’s apartment is assessed as KRW 00,000, to transfer its ownership to the Plaintiff, and the amount is determined as the actual value (the amount calculated by deducting the collateral debt amount of the instant apartment from the above appraised value of KRW 0

As such, in the procedure of determining the amount and method of the division of property by divorce pursuant to Article 839-2 of the Civil Act, where the court recognized the instant apartment as property subject to the division of property by mutual cooperation between the parties, and where the parties recognize the instant apartment as property subject to the division of property, and this is the other party’s property division to the Plaintiff, which is the other party, and inasmuch as the mediation was concluded that the Plaintiff transferred the ownership of the instant apartment, which is the monetary appraised value of the property that should be transferred to the division of property, and that the remainder should be paid in cash, it shall be deemed that the division of property has been made by mixing the in-kind division and the method of monetary payment with the specific method of the division of property. As such, in the mediation clause of the division of property, it shall not be deemed that the Plaintiff’s share of the instant apartment is not the cause of the division of property, but rather the payment

Therefore, in calculating transfer margin from the Plaintiff’s calculation of transfer income tax on the transfer of apartment of this case, the acquisition value shall be determined based on the time when the Plaintiff acquired the apartment of this case under the name of thisA, not on the time when the Plaintiff acquired the ownership of the apartment of this case due

(4) Nevertheless, the lower court determined that the Plaintiff’s ground for acquisition of the instant apartment is not a division of property, but a payment in kind, and that the acquisition value at the time of the registration of ownership transfer of the instant apartment under the Plaintiff’s name should be calculated based on the acquisition value at the time of the registration of ownership transfer of the instant apartment. In so doing, the lower

3. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.