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Bankruptcy in the light of divorce

15/ 08/ 2018
  Author: Law Agency Absolute According to statistics, Ukraine occupies one of the leading places in Europe in terms of the number of divorces, giving priority to Russia and Belarus. Proceeding from the data of sociological research, one of the most serious reasons for divorce, except treason and gambling, is material instability, including the lack of ones own housing. Moreover, such trends are common for all European countries, including the United States. In addition, sociologists trace the tendency to increase the number of divorces, depending on the deteriorating economic situation in the country. Taking into account the aforesaid, the problems of preservation and division of property in the case of divorce and bankruptcy of one of the spouses become especially topical. Initiation of the bankruptcy of Individual Entrepreneur Disappointing business in the business of one of the spouses is the reason for a third of divorces. The inability to fulfill their obligations, the existence of debts and credits along with a constantly falling market, often lead to the need to declare themselves bankrupt as the only way to get rid of their obligations. This was most clearly seen in the wake of the 2012 crisis. At that time, many entrepreneurial individuals (hereinafter referred to as EI) tried to initiate their own bankruptcy procedure as an EI in order to get rid of loans taken by them as private individuals. However, the judicial practice did not recognize such bankruptcies – loans had to be returned. The procedure for individual bankruptcy of an individual is not provided for by current legislation, but the Law of Ukraine On restoration of the debtors solvency or recognition as bankrupt (hereinafter – the Law) provides for the bankruptcy procedure of EI.  According to Art. 90 of the Law, the procedure for the bankruptcy of FLP is provided for a natural person for the obligations incurred in connection with the performance of entrepreneurial activities. This article regulates the provisions relating to the property of EI, namely, the property of the liquidation estate that can not be levied under the Civil Code of Ukraine, as well as property pledged for reasons not related to it with entrepreneurial activity. The economic court is also entitled to exclude part of the property of EI from the liquidation mass, but the total amount of such property can not exceed 6500 hryvnia. In addition, there is a direct indication that the EI contracts related to the alienation or transfer of property to interested parties throughout the year prior to the commencement of the bankruptcy procedure may be declared invalid by the economic court. In such circumstances, there is a threat of deprivation of a significant part of the jointly acquired property in the marriage. Thus, during the bankruptcy procedure, EI can actually respond jointly with the acquired property (if the pair has not previously provided for a legal regime for possession and disposal of property). In addition, divorce, not being a transaction in the notion of the norms of the Civil Code of Ukraine, still leads to the alienation of property. Property of the bankrupt For greater clarity, we will analyze the legal status of the property of bankrupt spouses in divorce under Ukrainian and American legislation. According to Art. 60 of the Family Code of Ukraine, property acquired during the marriage, belongs to the spouses on the right of common joint ownership. Proceeding from the legal position expressed by the Supreme Court of Ukraine in case No. №6-1752цс15 of 13.06.2016, the property of EI used in its economic activity is recognized as the joint property of the spouses on an equal basis with other property acquired during the marriage, subject to acquisition at the expense of the spouses . This statement is also found in the provisions of part 1, 2 art. 52 of the Civil Code of Ukraine. EI is responsible for obligations related to the conduct of economic activities with all of its property, except for property that can not be recovered. EI, married, is responsible for its obligations related to business activities with all of its personal property, as well as part of the joint property of the spouses that belong to him in the event of the division of property. Based on the above provisions of the current legislation, the property of EI is personal property, in the case of its acquisition at the expense of funds received from business. Joint property is recognized as property used in the economic activities of EI, but acquired at the expense of the common means of the spouses. The position is confirmed by the decision of the Supreme Court of Ukraine in case No. 6-21-c15 of 11.03.2015. The court concluded that the property of EI may be the object of joint property of the spouses together with the subject of division between them, provided that the property was acquired at the expense of the common means of the spouses regardless of the proportion of investment of each of them. Including things used in the economic activities of one of the spouses, in the case of the division of property are awarded to the person who uses them, and their value is taken into account when awarding other assets to the second spouse. Property Threat Thus, we can draw the following conclusions: firstly, the current bankruptcy procedure does not provide for the procedure for dividing property as well as for proving that the property to be collected is not owned by another member of the family. Nevertheless, according to the current legislation, divorce is not a contract, therefore, the division of property held a year before bankruptcy is not an illegal transaction. Lets note, the legislation of the USA provides even greater protection of interests of creditors. Bankruptcy can take place in two forms: in accordance with Chapter 13 or with Chapter 7 of the Bankruptcy Code. According to Chapter 13, bankruptcy is quite lengthy and provides for a longer procedure to preserve the debtors property, taking into account the introduction of a restructuring plan for existing debts and determining the repayment order. According to Chapter 7, bankruptcy provides for the possibility, as soon as possible, to get rid of debts by accumulating all property, selling it and repayment of creditor obligations at the same time. Following the provisions of US law, divorce is not an obstacle to foreclosure on property that is transferred to the second spouse during the partition procedure. In addition, in the event that the debtor does not fulfill its obligations, the creditors have the right to foreclose on the property of the second of the spouses or to show him monetary claims for reimbursement. In this case, the second of the spouses, even despite the divorce, is obliged to repay the debt as a joint defendant with the subsequent right to collect these debts from the debtor. However, in addition to the existence of a direct threat to property acquired in marriage, there is also a threat of deprivation of financial assets stored in bank accounts. In the event that the spouses had a joint credit line or an additional credit card with access to one account was issued for the second spouse, the second spouse must be jointly and severally liable for the obligations of the former when filing for bankruptcy. Thus, a divorce does not exempt from execution of debt obligations. Spouses, maintain equal responsibility when repaying a debt even after a divorce. Summarizing the above, we add that the rapid complication of legal regulation of a number of aspects of property protection leads to the need for more accurate decisions about his fate, both before the registration of marriage, and during a joint family life.

Author: Law Agency “Absolute”

According to statistics, Ukraine occupies one of the leading places in Europe in terms of the number of divorces, giving priority to Russia and Belarus.

Proceeding from the data of sociological research, one of the most serious reasons for divorce, except treason and gambling, is material instability, including the lack of one’s own housing.

Moreover, such trends are common for all European countries, including the United States. In addition, sociologists trace the tendency to increase the number of divorces, depending on the deteriorating economic situation in the country.

Taking into account the aforesaid, the problems of preservation and division of property in the case of divorce and bankruptcy of one of the spouses become especially topical.

Initiation of the bankruptcy of Individual Entrepreneur

Disappointing business in the business of one of the spouses is the reason for a third of divorces.

The inability to fulfill their obligations, the existence of debts and credits along with a constantly falling market, often lead to the need to declare themselves bankrupt as the only way to get rid of their obligations.

This was most clearly seen in the wake of the 2012 crisis. At that time, many entrepreneurial individuals (hereinafter referred to as EI) tried to initiate their own bankruptcy procedure as an EI in order to get rid of loans taken by them as private individuals.

However, the judicial practice did not recognize such bankruptcies – loans had to be returned.

The procedure for individual bankruptcy of an individual is not provided for by current legislation, but the Law of Ukraine “On restoration of the debtor’s solvency or recognition as bankrupt” (hereinafter – the Law) provides for the bankruptcy procedure of EI.

 According to Art. 90 of the Law, the procedure for the bankruptcy of FLP is provided for a natural person for the obligations incurred in connection with the performance of entrepreneurial activities. This article regulates the provisions relating to the property of EI, namely, the property of the liquidation estate that can not be levied under the Civil Code of Ukraine, as well as property pledged for reasons not related to it with entrepreneurial activity.

The economic court is also entitled to exclude part of the property of EI from the liquidation mass, but the total amount of such property can not exceed 6500 hryvnia. In addition, there is a direct indication that the EI contracts related to the alienation or transfer of property to interested parties throughout the year prior to the commencement of the bankruptcy procedure may be declared invalid by the economic court.

In such circumstances, there is a threat of deprivation of a significant part of the jointly acquired property in the marriage. Thus, during the bankruptcy procedure, EI can actually respond jointly with the acquired property (if the pair has not previously provided for a legal regime for possession and disposal of property). In addition, divorce, not being a transaction in the notion of the norms of the Civil Code of Ukraine, still leads to the alienation of property.

Property of the bankrupt

For greater clarity, we will analyze the legal status of the property of bankrupt spouses in divorce under Ukrainian and American legislation.

According to Art. 60 of the Family Code of Ukraine, property acquired during the marriage, belongs to the spouses on the right of common joint ownership.

Proceeding from the legal position expressed by the Supreme Court of Ukraine in case No. №6-1752цс15 of 13.06.2016, the property of EI used in its economic activity is recognized as the joint property of the spouses on an equal basis with other property acquired during the marriage, subject to acquisition at the expense of the spouses .

This statement is also found in the provisions of part 1, 2 art. 52 of the Civil Code of Ukraine.

EI is responsible for obligations related to the conduct of economic activities with all of its property, except for property that can not be recovered. EI, married, is responsible for its obligations related to business activities with all of its personal property, as well as part of the joint property of the spouses that belong to him in the event of the division of property.

Based on the above provisions of the current legislation, the property of EI is personal property, in the case of its acquisition at the expense of funds received from business. Joint property is recognized as property used in the economic activities of EI, but acquired at the expense of the common means of the spouses.

The position is confirmed by the decision of the Supreme Court of Ukraine in case No. 6-21-c15 of 11.03.2015. The court concluded that the property of EI may be the object of joint property of the spouses together with the subject of division between them, provided that the property was acquired at the expense of the common means of the spouses regardless of the proportion of investment of each of them. Including things used in the economic activities of one of the spouses, in the case of the division of property are awarded to the person who uses them, and their value is taken into account when awarding other assets to the second spouse.

Property Threat

Thus, we can draw the following conclusions: firstly, the current bankruptcy procedure does not provide for the procedure for dividing property as well as for proving that the property to be collected is not owned by another member of the family.

Nevertheless, according to the current legislation, divorce is not a contract, therefore, the division of property held a year before bankruptcy is not an illegal transaction.

Let’s note, the legislation of the USA provides even greater protection of interests of creditors. Bankruptcy can take place in two forms: in accordance with Chapter 13 or with Chapter 7 of the Bankruptcy Code.

According to Chapter 13, bankruptcy is quite lengthy and provides for a longer procedure to preserve the debtor’s property, taking into account the introduction of a restructuring plan for existing debts and determining the repayment order.

According to Chapter 7, bankruptcy provides for the possibility, as soon as possible, to get rid of debts by accumulating all property, selling it and repayment of creditor obligations at the same time.

Following the provisions of US law, divorce is not an obstacle to foreclosure on property that is transferred to the second spouse during the partition procedure.

In addition, in the event that the debtor does not fulfill its obligations, the creditors have the right to foreclose on the property of the second of the spouses or to show him monetary claims for reimbursement. In this case, the second of the spouses, even despite the divorce, is obliged to repay the debt as a joint defendant with the subsequent right to collect these debts from the debtor.

However, in addition to the existence of a direct threat to property acquired in marriage, there is also a threat of deprivation of financial assets stored in bank accounts.

In the event that the spouses had a joint credit line or an additional credit card with access to one account was issued for the second spouse, the second spouse must be jointly and severally liable for the obligations of the former when filing for bankruptcy.

Thus, a divorce does not exempt from execution of debt obligations. Spouses, maintain equal responsibility when repaying a debt even after a divorce.

Summarizing the above, we add that the rapid complication of legal regulation of a number of aspects of property protection leads to the need for more accurate decisions about his fate, both before the registration of marriage, and during a joint family life.

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