Hello, this is attorney Eom Sang-yoon of Cheongchul Law Firm.

Marital property subject to division on divorce increasingly includes shares in private (unlisted) companies — controlling stakes held by founders and owners of small and mid-sized companies, startup founders' equity, and business interests built up by a self-made entrepreneur with the support of a spouse. Unlike listed shares, private shares are not freely priced on an open market and are in practice traded only among company insiders. Because of that closed character, the way the shares are divided can change the outcome of the property division itself.

In its decision of 29 May 2026 (Case Nos. 2024Meu16033, 16040), the Korean Supreme Court set out a clear standard: in dividing marital property, a court should as a rule give priority to so-called "compensatory division" (allocating the shares to one spouse and ordering a cash payment to the other) for private shares, but where insisting on compensatory division alone would seriously undermine fairness between the parties, the court must actively consider combining several methods of division, including division in kind. This article reviews the decision and its practical implications.

Established methods of property division and compensatory division

In a property division case, the family court must determine the amount and the method of division taking into account each party's contribution to the formation of the property and all other circumstances (see Articles 839-2(2) and 843 of the Korean Civil Act). Once the scope and the amount have been fixed, Korean case law has long recognised several methods of carrying out the division.

(i) Division in kind transfers the asset itself to each spouse in proportion to their share — co-ownership shares in the case of real property, and a corresponding number of shares in the case of stock.

(ii) Division by auction converts the marital property into cash through an auction and distributes the proceeds in proportion to each share.

(iii) Assumption of debt orders one spouse to assume a joint marital debt, with that burden reflected in the division.

(iv) Compensatory division, the method directly addressed in this decision, assigns a specific asset to one spouse alone and orders that spouse to pay the other a corresponding sum of money. A typical example is awarding a jointly owned apartment to the husband while ordering him to pay the wife its equivalent value in cash.

In practice, hybrid forms combining these methods are also widely used, and the most suitable approach depends on the type of asset, the circumstances of the parties and the demands of fairness in each case.

The Supreme Court's reasoning in 2024Meu16033, 16040

The case concerned a divorce in which the marital property included private company shares, and the method of dividing those shares was the central issue. The Court set out the following principles.

1. Problems with division in kind arising from the closed nature of private shares

The Court first noted that private shares (i) are typically traded only among company insiders and (ii) are not freely priced through competition on an open market. In light of those features, a spouse who takes no part in running the company and receives a minority parcel of private shares in kind may suffer real disadvantages:

• The receiving spouse will find it difficult to realise a fair price for a minority holding because of the company's closed character. Unlike listed shares, private shares have no trading market, so a sale is hard to achieve and a substantial discount is unavoidable even if a buyer is found.

• A minority holding also makes it difficult to participate in management, since it has little real influence over director appointments or major corporate decisions.

• There is a comparatively high risk that the value of the minority holding will be dictated by the other spouse, who holds the majority — through conduct that impairs corporate value or through management decisions such as suppressing dividends, unfair dealings with affiliates or discretionary share issues.

2. Priority for compensatory division

Weighing those features, the Court held that "when a court determines the method of dividing private shares, it is desirable to give priority, so far as possible, to compensatory division, absent special circumstances such as an agreement between the parties on the method of division or difficulty in assessing the objective value of the shares". The purpose is to prevent the substantive unfairness that division in kind can produce, while preserving the closed governance structure of the company and still achieving a fair division.

3. Combining methods where compensatory division would seriously undermine fairness

At the same time, the Court emphasised that even allowing for the court's supervisory discretion in family non-contentious proceedings, and in light of the purpose of property division — to liquidate and distribute marital property in a way that is substantively fair between the parties — a court must not order a division in a manner that seriously undermines fairness between the parties.

Accordingly, where ordering compensatory division alone would seriously undermine fairness, the court must not insist on that method but should actively consider combining several methods, including division in kind. Examples include (i) where the objective value of the private shares is so high that the cash payment required plainly exceeds the paying spouse's capacity, and (ii) where private shares make up such an overwhelming proportion of the marital property that compensatory division alone cannot secure the other spouse's share. In those situations, division in kind, division by auction or assumption of debt may be combined.

Practical implications

The decision matters most in divorces involving founders, owners of small and mid-sized companies and startup founders.

For the spouse who controls the private shares (typically the founder or manager), the decision provides a basis for asking the court to let them retain the entire holding and settle with the other spouse in cash. That protects corporate value in terms of (i) retaining control of the company, (ii) preserving the closed ownership structure, and (iii) avoiding future disputes with a new minority shareholder. Anyone seeking compensatory division must, however, prepare a funding plan capable of actually paying the settlement sum. Where that capacity is clearly lacking, a combined approach including division in kind becomes far more likely.

For the non-managing spouse, it is important to recognise that receiving a minority stake in kind is not necessarily advantageous. Given the risk of value erosion through suppressed dividends or unfair affiliate transactions, the difficulty of realising the shares and the practical impossibility of participating in management, securing a fair cash sum through compensatory division is often the better outcome in substance. Because the settlement figure depends entirely on how the shares are valued, it is decisive to engage actively with the court-appointed valuation and, where necessary, to obtain a private valuation so that the shares are not undervalued. Private shares are generally valued using a combination of (i) net asset value, (ii) income approaches such as discounted cash flow, and (iii) comparable company analysis, and results vary widely with the company's financial position, profitability, growth prospects and sector.

Where a combined approach is appropriate, several structures are available: (i) transferring part of the shareholding in kind and settling only the remainder in cash, (ii) transferring other marital assets such as real property to the other spouse while the controlling spouse keeps all the shares, or (iii) paying the settlement in instalments secured by a pledge over the shares. Designing such a combination requires weighing the company's governance, its cash position and the other spouse's real interests, so professional advice should be obtained in advance.

The decision also matters for founders and executives who anticipate a divorce. Where a dispute over property division is foreseeable, (i) securing records on when the shares were acquired and the source of the funds, (ii) objectively documenting the extent of the spouse's contribution to running the company and building the marital estate, and (iii) maintaining the financial statements, shareholder registers and other materials needed for valuation will directly affect the method, scope and settlement amount in any later dispute.

That said, the decision sets a general standard for dividing private shares. The method actually adopted in a given case will vary considerably with (i) the value of the shares and the size of the company, (ii) the proportion of the marital estate they represent, (iii) each spouse's payment capacity and financial position, (iv) the company's governance and relations with other shareholders, and (v) all other circumstances relevant to fairness. Anyone preparing for or responding to a divorce in which private shares are at stake should therefore design the division method and settlement scale in advance with comprehensive professional support.