Mr. Joseph Sabater Paredes

October 8, 2009 BIR RULING [DA-(I-033) 584-09] 24 (D) (1); 427-88; DA-096-97; DA-092-01; DA-511-07 Mr. Joseph Sabater Paredes Unit 1203, Goldhill Tower No. 5 Annapolis St., Greenhills San Juan City Sir : This refers to your letter dated October 2, 2009 requesting for an opinion on the tax consequence of the court approved settlement of the properties you conjugally owned with your wife, Lorna Pascual-Paredes, by virtue of the Order issued by the Regional Trial Court of Makati City, Branch 136, National Capital Judicial Region, on March 14, 2008 in Civil Case No. 07-050. It is represented that on August 14, 1988, you were married to Lorna Pascual-Paredes; that you have been separated in fact for more than one year and that reconciliation is highly improbable; that you and your wife, assisted with your respective counsels, through the process of the Supreme Court's system of Judicial Dispute Resolution ("JDR"), mutually agreed to put a definitive and absolute end, by way of settlement, to the legal actions relative to the separation of your property relations, while the Petition for Declaration of Nullity of Marriage in Civil Case No. 7479-TG, entitled "Joseph S. Paredes vs. Lorna Pascual Paredes", pending before the Regional Trial Court, Pasig City (Taguig Station), Branch 163, is still ongoing; that to give effect of your mutual desire to settle your properties, you have mutually agreed to dissolve your property relations and agreed to distribute the same in the manner as stated in the Compromise Agreement to which the Court has acquiesced; that in accordance with the above Court approved Compromise Agreement, the following real properties, together with any improvements found thereon, shall be delivered and exclusively pertain to you, viz. : 1) Condominium Certificate of Title No. 34835 of the registry of Deeds for Pasig City (Robinsons PCI Bank Tower); 2) Condominium Certificate of Title No. 68693 of the Registry of Deeds for Makati City (Le Domaine); 3) Condominium Certificate of Title No. C-11584-R of the Registry of Deeds for San Juan, Metro Manila (LPL Greenhills); 4) Condominium Certificate of Title No. C-11585-R of the Registry of Deeds for San Juan, Metro Manila (Parking Space Slot, LPL Greenhills); IDESTH 5) Transfer Certificate of Title No. N-267933 of the Registry of Deeds for Quezon City (Matandang Balara); 6) Transfer Certificate of Title No. T-28944 of the Registry of Deeds for Tagaytay City (Tagaytay Grand View III), including improvements covered by Tax Declaration No. AA-00029-02771; 7) Transfer Certificate of Title No. T-1073345 of the Registry of Deeds for Province of Dasmarias, Cavite (Orchard); and 8) Lot identified as Block 13, Lot Punta Fuego and covered by a Contract to Sell No. 0707 dated July 16, 2002 with an area of 537 square meters. In reply, please be informed that 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." Since you were married with Lorna Pascual-Paredes on August 14, 1988, after the effectivity of the Family Code, it is presumed that the property regime governing your property relationship is the system of absolute community. Thus, for the reason that you and your spouse have been separated for more than one year and reconciliation is highly improbable, the properties belonging to the absolute community 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 properties in your favor 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 the part of your spouse because the transfer is made only in compliance with your property settlement which was approved by the court. Moreover, the said transfer of real properties is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, for said transfer is made without any monetary consideration. (BIR Ruling No. 427-88 dated August 31, 1988; BIR Ruling Nos. DA-096-97 dated March 14, 1997, DA-092-01 dated May 6, 2001, & DA-511-07 dated September 26, 2007) 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