Division of property in Ukraine: what about share in charter capital?

When creating a business entity in Ukraine very few people think about consequences of new founder inclusion. And if we are talking about "family" business such founder may be a spouse. Moreover in some situations for various reasons a wife (husband) of the actual businessman/manager becomes the sole member of an entity.

The analysis of such "substitution" consequences is required when issue of division of property arises after a divorce. Litigation practice related to this matter is quite wide. In 2007 the Plenum of the Supreme Court of Ukraine dedicated a separate resolution on application of law by courts in cases related to right to marriage, divorce, annulment of marriage and division of property between spouses during divorce (number 11 dated 21.12.2007).

In particular when speaking about right to a share in charter capital of a company the Plenum of the Supreme Court of Ukraine pointed out that Article 12 of the Law of Ukraine "On Companies" stipulates that company itself is the owner of property transferred to it by its founders and shareholders. Share in company's charter capital is not a subject to the right of joint marital property.

Sections 2 and 3 of Art.61 of the Family Code of Ukraine stipulate that if the contribution to the charter capital of a company is made with marital property, securing family interest a spouse who is not a member of a company has the right for division of income. When one spouse uses joint property contrary to Article 65 of the Family Code of Ukraine the other spouse is entitled to compensation in the amount of his/her share (Section 28 of the mentioned Resolution of the Supreme Court of Ukraine Plenum).

This position of the Supreme Court Plenum was interpreted in two ways by courts: on the one hand they recognized that one spouse (the one that is not a shareholder) is only entitled to his/her part of revenue during the division of property (excluding total share of property of company assets) and on the other – they used this stipulation only when defining the right for company revenues of spouse who is not a shareholder (not involving issue of rights to property transferred to charter capital of a company).

While searching for "the truth" one private company addressed the Constitutional Court of Ukraine which gave quite brief answer in its Decision dated 19.09.2012. In particular the Constitutional Court concluded that a private company founded by a spouse is a separate object of joint marital property which includes all types of property in particular contribution to charter capital and assets allocated from their joint property.

Taking this into consideration the Constitutional Court of Ukraine concluded that charter capital (its shares) and assets of a private company formed with the joint marital property is the object of their joint property. But such a conclusion is likely to lead to some problems in practice. It should be considered that when deciding on the division of property in the form of shares or parts of charter capitals of companies first and foremost it should be understood that the division issue is solved depending on type of legal entity, legal form of its activities, and nature of legal relations of spouses with this entity. It is also necessary to analyze the provisions of charter documents searching for the object of such division and possibility of a new member appearance after the division of a share between the two owners.

In general the Constitutional Court of Ukraine provided entirely logical and understandable decision but unresolved issues still remain. Although equal treatment by the courts on matters related to the right of each spouse to share in charter capital is now expected the mechanism of such right implementation will probably cause a number of difficulties in practice.

Publication date: 26/09/2012

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