Mrs. Annette Ty

September 26, 2007 BIR RULING [DA-511-07] 24 (D) (1); 27 (D) (5); 196 DA-102-2003; DA-414-2006 Mrs. Annette Ty No. 316 Apo Street, Ayala Alabang Muntinlupa City M a d a m : This refers to your letters dated May 3, 2007 and July 21, 2007 requesting for an opinion on the tax consequences of the court approved settlement of the properties you conjugally owned with your husband, Washington Ty, by virtue of the decision rendered by the Regional Trial Court of Pasig City, Branch 162, National Capital Judicial Region, on September 4, 2006 in Civil Case No. 7109-81. Based on the documents submitted, it appears that you and your husband, Washington Ty, were married on April 28, 1978; that you have been separated de facto since October 1999; that since reconciliation is highly improbable, you agreed to have a voluntary separation of all properties belonging to the conjugal partnership of gains in accordance with Article 134 of the Family Code, as amended, while your divorce case is pending in the Family Court of Orange County, California, U.S.A.; that initially, you were not amenable to the Memorandum of Agreement submitted to the court on July 14, 2005, hence, the filing of an Opposition thereto; that subsequently, a supplemental Memorandum of Agreement was submitted for approval of the court dated July 19, 2006, which was later approved on September 4, 2006, together with the first Memorandum of Agreement dated July 14, 2005; that under the aforesaid Memorandum of Agreement and its supplemental, it is agreed that the following properties shall be adjudicated to you, viz.: (1) The conjugal house and lot located at No. 853 Ethelinda Way, Brea, C.A., U.S.A., particularly described as Lot 68 of Tract 8857, in the City of Brea, County Orange, State of California, as shown on a map recorded in book 464, pages 38-44, both inclusive of miscellaneous maps, records of Orange County, California, Parcel Number # 304-272-16; (2) The house and lot located at No. 316 Apo Street, Ayala Alabang Village, Muntinlupa City, which is presently in the name of Winrolin Development Corporation, a domestic corporation of which Washington Ty is a stockholder; (3) Lot 19 Block 3 plan, covered by TCT No. 182260 with 681 sq. m., more or less, located in San Isidro St., Ayala Alabang Village, Muntinlupa City, which is presently in the name of 316 Development Corporation, a domestic corporation; IaAEHD (4) The conjugal propriety share in the Ayala Alabang Country Club; (5) The house and lot located at BF Homes, Paraaque City, covered by TCT No. 103397 of the Registry of Deeds of Paraaque, consisting of 204 sq. m., more or less; (6) One (1) studio unit at BSA Suites, Legaspi Village, covered by Condominium Certificate of Title No. 58593 of the Registry of Deeds of Makati City, consisting of 46 sq. m., more or less; (7) Canyon Woods composed of 274 sq. m. at Laurel, Batangas, covered by TCT No. T-62145, consisting of 274 sq. m., more or less; (8) Westgrove Lot 17, Blk. 12, located at Westgrove Heights, Phase 4, Silang Cavite, with TCT No. T-43923, consisting of 387 sq. m.; (9) A Manila Memorial Life Plan and Thirty Six (36) Manila Memorial lots acquired from Manila Memorial Park Cemetery, Inc. (MMPCI), through a Deed of Sale dated April 19, 1985 under Contract No. 47263, situated within the cemetery of MMPCI at Barrio San Dionisio, Paraaque City, being a portion of TCT No. 277819 of the registry of Deeds of Province of Rizal, and more particularly described in the maps and lot books on file in the Office of MMPCI as 36 Lots, Block 232, Section Plaza of Wisdom Ph 1 Annex Premium; and SCEHaD (10) Additional sum of money in the amount of P15,000,000.00. On the other hand, the following properties shall be adjudicated to your estranged husband, Washington Ty, viz.: (1) Sta. Rosa, Laguna property, described as Lot No. 8, with an area of 165 sq. m., covered by TCT No. T-173182; (2) Sta. Rosa, Laguna property, described as Lot No. 6, with an area of 187 sq. m., covered by TCT No. T-173181; (3) Camastilisan, Calaca, Batangas property, described as Lot No. 113, with an area of 396 sq. m., covered by OCT No. 532; (4) Camastilisan, Calaca, Batangas property, described as Lot No. 212, with an area of 980 sq. m., covered by OCT No. 533; (5) Salustiana D. Ty Tower Condominium Corp., with an area of 49.69 sq. m., 4/F, covered by CCT No. 36285; (6) Salustiana D. Ty Tower Condominium Corp., with an area of 102.42 sq. m., 7/F, covered by CCT No. 32521; (7) Eleano Tower Condominium Corp., Unit No. 402, with an area of 38.43 sq. m., covered by CCT No. 14948; (8) Eleano Tower Condominium Corp., Unit 40, with an area of 41.90 sq. m., covered by CCT No. 14947; HcSaTI (9) Eleano Tower Condominium Corp., Unit G-03, with an area of 61.25 sq. m., covered by CCT No. 14946; (10) Eleano Tower Condominium Corp., Unit G-06, with an area of 29.36 sq. m., covered by CCT No. 14945; and (11) Cavite properties, covered by TCT Nos. T-807131, T-807735, T-807137, T-807139; T-807140, T-807141, T-871595, T-871596, T-871597, T-871598, T-871599, T-871600, T-871601, T-871602, T-871603, T-871604, T-871605, T-871606, T-871607, T-871608, T-871609, T-871610, T-339685, T-339686, T-322602, T-368180 and T-739161. Likewise, it is agreed that the following properties shall be adjudicated to your children, pro indiviso : (1) Seven (7) door apartment in Glendale, C.A., U.S.A., particularly described as Lot 342 of Tract No. 1744 in the City of Glendale, County of Los Angeles, State of California, as per map recorded in book 21 pages 186 and 187 of maps, in the office of County Recorder of said county; (2) Washington's eight percent (8%) interest in the condominium complex in Texas, U.S.A., particularly described as 502 East Beltway limited DBA Green tree Apartments. (3) The conjugal proprietary share in the Tagaytay Highlands Country Club; and (4) One (1) unit 1999 Toyota Hi-Ace, with license plate no. WLL-357 and one (1) unit 2003 Isuzu Crosswind, with license plate no. XJW-150 for the exclusive use of the children. In reply, please be informed that since you were married with Washington Ty in the year 1978, which was before the effectivity of the Family Code, the Court in its decision granting the decree of separation of property presumed that the property regime governing your property relationship is the conjugal partnership of gains. Thus, the properties you and your spouse acquired during your marriage are considered conjugal. Articles 134 and 135 (6) of the Family Code, as amended, the applicable provisions in the instant case, provide as follows: "ART. 134. In the absence of an express declaration in the marriage settlements, the separation of property between spouses during the marriage shall not take place except by judicial order. Such judicial separation of property may either be voluntary or for sufficient cause." "ART. 135. Any of the following shall be considered sufficient cause for judicial separation of property: xxx xxx xxx (6) That at the time of the petition, the spouses have been separated in fact for at least one year and reconciliation is highly improbable." For the reason that you and your spouse have been separated for almost eight years and reconciliation is highly improbable, your conjugal properties are now voluntarily dissolved or separated and are distributed in accordance with the court approved settlement thereof. Such being the case, and considering that the transfer, adjudication or distribution of the above-mentioned conjugal properties in your favor and that of your spouse is not pursuant to a sale, hence, without any monetary consideration, the said transfer, adjudication or distribution therefore is not subject to the capital gains tax imposed under Sections 24 (D) (1) and 27 (D) (5) of the Tax Code of 1997, as amended. Neither is the said adjudication, transfer, or distribution subject to the donor's tax imposed under Section 98 of the same Tax Code, there being no donative intent on your part and that of your spouse because the transfer is made only in compliance with your property settlement which was approved by the court. On the other hand, the adjudication of portions of the conjugal properties to the children shall be considered as a delivery of their presumptive legitimes pursuant to Article 50 of the Family Code, as amended, and therefore not subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. Likewise, said transfer of properties or delivery of presumptive legitimes is not subject to the documentary stamp tax imposed under Section 196 of the same Code. Neither is it subject to the donor's tax imposed under Section 98 (A) of the Tax Code of 1997, as amended, there being no donative intent on your part and your spouse because the transfer is only in compliance with the order of the court. (BIR Ruling No. DA-414-2006 dated July 4, 2006) HDAaIS However, an annotation of the transmission of such properties to the children as their presumptive legitimes must be made in the corresponding transfer certificates of title covering such realties, for estate tax purposes. (BIR Ruling No. DA-102-2003 dated April 1, 2003) The said properties being considered as advances on the children's legitime pursuant to Article 51 of the Family Code, as amended, shall be included in the gross state and subject to the estate tax, if any, only upon death of either of you and your spouse. The subject properties shall be included in your and your spouse's estate pro rata or divided equally as said properties are your conjugal properties. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service