Hello, this is attorney Kim Kwang-sik of Cheongchul Law Firm.

The Supreme Court of Korea has, for the first time, expressly held that in a divorce property-division case where unlisted shares make up most of the marital estate, insisting solely on a cash-based ‘substitute division’ may undermine fairness, and that diverse methods such as ‘in-kind division’ — dividing the shares themselves — must be considered together. This has drawn keen attention to its impact on divorce and property-division litigation in the business world. In particular, analysts note that in the divorce suit of Smilegate founder Kwon Hyuk-bin, whose estate consists largely of unlisted-company shares, this ruling could serve as the legal basis for in-kind division.

Until now, family-law practice has generally favored substitute division for unlisted shares — assigning the shares to one spouse and settling the other spouse’s share in cash — on the grounds that minority shareholders have limited rights and that conversion into cash is difficult. Yet doubts have persisted over whether confining unlisted shares worth trillions of won to the single framework of ‘cash settlement’ is truly fair, and this ruling addresses precisely that point head-on.

Today I will organize the discussion around the meaning of this Supreme Court ruling, the difference between in-kind division and substitute division, the special characteristics of unlisted shares in property division, the impact on the Smilegate case, and how it differs from the listed-share-centered SK case.

[Question]

When most of the marital estate in a divorce consists of unlisted-company shares, must one spouse necessarily take the shares and settle the other in cash? Or may the spouses divide the shares themselves? How does this Supreme Court ruling apply to cases such as Smilegate or SK?

[Answer]

1. Distinguishing ‘in-kind division’ from ‘substitute division’

Property division upon divorce is a system for liquidating the property that the spouses jointly formed and maintained during the marriage and for securing post-divorce livelihoods. There are broadly two methods of division. The first is ‘in-kind division,’ which divides the property itself in its physical form and assigns it to each party; the second is ‘substitute division (value settlement),’ which assigns the property to one party and orders that party to pay the other a portion of its value in money.

The court determines the method of division by comprehensively considering the type and nature of the property subject to division, each party’s contribution, the feasibility of managing and disposing of the property after division, and the parties’ intentions. For property whose valuation and conversion into cash are relatively clear, such as real estate or deposits, either in-kind or substitute division may be set fairly flexibly; but because of their special characteristics, unlisted shares have in practice been handled under substitute division as a virtual rule.

2. The special characteristics of unlisted shares in property division

Unlike listed shares, unlisted shares are not freely traded on a public market. As a result, the following problems arise. First, because no objective market price exists, the ‘appraisal’ of company value itself becomes a major point of dispute. Second, buyers are hard to find, so conversion into cash is difficult. Third, holding only a minority stake limits the exercise of shareholder rights such as dividends and voting rights, making it hard to recover real value. Fourth, dispersing the shares may affect the company’s governance structure and control.

For these reasons, family-law practice has generally assigned unlisted shares entirely to one spouse (usually the founder who manages the company) and settled a portion of their appraised value to the other spouse in cash through substitute division. Although some lower courts, such as the Seoul High Court, have exceptionally recognized in-kind division in the past, the reality is that substitute division has been chosen in the majority of cases.

3. The Supreme Court’s new ruling — “Substitute division should not be the only option”

On May 29, 2026, the Supreme Court for the first time expressly held that in a divorce property-division case where unlisted-company shares make up most of the entire estate, insisting solely on monetary settlement (substitute division) may undermine fairness, and that diverse methods of division, including in-kind division, must be considered together.

The significance of this ruling does not stop at a mere declaration that ‘in-kind division is also possible.’ Where almost the entire estate consists of unlisted shares, concentrating those shares in one party and ordering the other to be paid only the ‘appraised value’ in cash creates problems: ① any benefit from a future sharp rise in company value accrues to only one side; ② the burden arises of having to ultimately sell shares or assets to raise an enormous settlement sum; and ③ the fairness of the division depends heavily on the appraisal result. The Supreme Court squarely opened the possibility of in-kind division as a means of correcting such imbalances.

One point to note, however, is that this ruling did not nail down that ‘unlisted shares must always be divided in kind.’ The Supreme Court merely made clear that substitute division should not be insisted upon as the only option; the specific method of division is still left to the fact-finding court, which decides by comprehensively considering factors such as the spouse’s contribution, the company’s governance structure, and the impact on control.

4. The impact on the Smilegate case

The case for which this ruling’s direct impact is being discussed is the divorce suit of Kwon Hyuk-bin, founder and Chief Vision Officer (CVO) of Smilegate. Property appraisal reportedly valued Smilegate Holdings, an unlisted company, at a minimum of about 4.9 trillion won and a maximum of roughly 8.016 trillion won, and Kwon’s spouse, identified as Ms. Lee, is reported to be claiming division of roughly half of the stake. Notably, Ms. Lee’s side is reported to be seeking in-kind division of the shares rather than monetary settlement, so whether this Supreme Court ruling applies is drawing attention.

Ms. Lee’s side claims she participated in management by contributing capital during the founding process and serving as an inside director, while Smilegate counters that it ‘was not a joint founding and there was no fact of capital contribution or management participation.’ Amid this sharp dispute over contribution, legal observers analyze that even if the court chooses in-kind division, this Supreme Court ruling could serve as its legal basis. Even if in-kind division is recognized, however, its ratio and scope are expected to be decided by comprehensively considering the spouse’s contribution and the impact of share dispersion on control; the final hearing in this case is scheduled for July 8.

5. The difference from the SK case – listed versus unlisted shares

By contrast, the prevailing view is that this ruling will have little direct impact on the property-division suit (the remand proceedings) between SK Group Chairman Chey Tae-won and Art Center Nabi director Roh Soh-yeong, because the core issues of the two cases differ fundamentally.

The core issues in the SK case are the property-division ratio of SK Inc.’s ‘listed shares’ and the point in time as of which the value of the property subject to division should be calculated. In judicial divorce, the value for property division is, in principle, calculated as of the date the fact-finding proceedings close; but in Chairman Chey’s case, while the divorce became final, the property-division portion was remanded and is under review, so it is disputed whether the reference point should be the close of proceedings in the original appellate court before remand or the close of the remand proceedings. With SK’s share price recently surging, this reference-point issue has come into even sharper focus.

This Supreme Court ruling is a judgment premised on the special characteristics of ‘unlisted shares,’ for which there is no public market and conversion into cash is difficult. SK shares, by contrast, are listed shares freely traded on a public market, so the problems peculiar to unlisted shares — the difficulty of cash conversion and market-price calculation — do not arise. Accordingly, the general view in legal circles is that the reasoning of an unlisted-share case cannot simply be applied to a listed-share-centered case. In short, while this ruling carries great significance for divorce cases of founders with a large proportion of unlisted shares, its issues differ somewhat from those of listed-share-centered cases.

6. Points the parties should check

First, where a substantial part of the estate consists of unlisted shares, the ‘method of division (whether in-kind or substitute)’ itself becomes the core strategy. Because who bears the risk and benefit of changes in company value differs entirely depending on whether one seeks in-kind division or a settlement sum under substitute division, one must clearly design a position on the method of division at the early stage of litigation.

Second, the ‘valuation’ of unlisted shares determines success or failure. Because there is no objective market price, the appraised value varies greatly depending on the appraisal method (net asset value, income value, comparable-company analysis, etc.) and the valuation reference date, so a strategic response to the appraisal process is important.

Third, there is proof of ‘contribution.’ Contributions during the marriage — founding, capital contribution, management participation, domestic support, and so on — must be systematically organized with objective materials (capital-contribution records, registrations, employment records, fund flows, etc.) to draw a favorable judgment on both the division ratio and the method of division.

Fourth, there is the impact of in-kind division on the company’s ‘governance structure and control.’ Because dispersing shares to a spouse may create room for disputes over voting rights, dividends, and control, it is advisable for the company and the founder to jointly review preemptive measures such as the articles of incorporation, shareholders’ agreements, and buyback structures.

This Supreme Court ruling is seen as presenting a direction in which, departing from the single formula of ‘cash settlement’ in the property division of unlisted shares, courts must actively seek a fair method of division suited to the case. Yet in-kind division is not always the answer; the key is to weigh company value, contribution, the impact on control, and the feasibility of cash conversion comprehensively to identify the fairest method between in-kind and substitute division. The more an estate is dominated by unlisted shares, the more the method of division, valuation, and proof of contribution will determine the outcome.

Cheongchul Law Firm provides comprehensive legal advice in divorce and property-division cases involving unlisted shares — from designing the method of division (in-kind or substitute), responding to unlisted-share valuation and appraisal procedures, and strategy for proving contribution, to reviewing the impact of in-kind division on corporate governance and control. If you need a review of a property-division matter involving unlisted shares, we recommend systematically organizing your property details and materials from the earliest stage to design the method of division and your response direction.