Disposal of Corporate Rights Does Not Eliminate a Partner’s Right to Compensation

⚖️ Ukraine | Family Disputes | Division of Marital Property

Case Details

Case No.: 161/19023/17
Proceedings No.: 61-16823св19
Court: Supreme Court, First Judicial Chamber of the Civil Cassation Court
Decision Date: 11 March 2020
Case Category: Family Law
Subject Matter: Division of Property Acquired During Cohabitation
Sub-Subject: Corporate Rights / Charter Capital Contributions / Compensation
Relationship: Cohabitation as a Family Without Registered Marriage
Period of Cohabitation: January 2004 – March 2015
Property in Dispute: Corporate interests and other property acquired during cohabitation
Corporate Property in Dispute: Contributions to the charter capital of limited liability companies
Outcome: Right to compensation for 1/2 of jointly funded charter-capital contributions recognised; disposal of corporate rights during the proceedings did not extinguish the compensation claim.

Background of the Dispute

The case concerned an important question arising where jointly acquired family wealth has been invested in a business:

Can one partner defeat the other partner’s claim to compensation by disposing of corporate rights while the property-division proceedings are pending?

The parties lived together as a family from January 2004 until March 2015 without registering their marriage. They had two children together.

The claimant sought recognition of property acquired during their cohabitation as joint property and its subsequent division.

The claim covered several categories of assets, including an apartment, vehicles, a land plot, construction materials and structural elements of an unfinished building.

The dispute also extended to corporate interests held by the respondent in several limited liability companies.

The claimant sought recognition of her right to compensation corresponding to 1/2 of the contributions made to the charter capital of the relevant companies, as well as a share of income received from their activities.

The case therefore required the courts to determine how corporate interests financed with joint family funds should be treated and whether their subsequent disposal could affect the other partner’s property claim.

Corporate Contributions Were Made Using Joint Family Funds

The courts established that the respondent held interests in the charter capital of several limited liability companies.

When considering the claim concerning two of those companies, the first-instance court relied, among other things, on information contained in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organisations.

The respondent did not dispute that he held the relevant interests.

More importantly, the courts established that the contributions to the companies’ charter capital had been formed using funds belonging to the parties while they were living together as a family.

On that basis, the claimant was recognised as having a right to compensation corresponding to 1/2 of the contributions made to the charter capital of the relevant companies.

The dispute was therefore not resolved simply by determining whose name appeared in the corporate register. The source of the funds used to form the relevant corporate interests was central to the property analysis.

Disposal of Corporate Rights During Litigation Does Not Defeat the Compensation Claim

A separate issue arose in relation to another company.

By the time the first-instance court delivered its judgment, the relevant corporate rights were no longer held by the respondent.

The first-instance court therefore concluded that those rights could not be included in the parties’ joint property and rejected the corresponding part of the claim.

The appellate court disagreed.

It held that the respondent’s disposal of the corporate rights while the case was being considered by the court did not deprive the claimant of the right to seek compensation corresponding to 1/2 of the respondent’s contribution to the company’s charter capital.

The Supreme Court agreed with that approach.

Accordingly, a transfer or other disposal of corporate rights during pending litigation does not automatically extinguish the economic claim arising from the use of joint family funds to finance the relevant corporate contribution.

The Claim Concerns the Economic Value Behind the Corporate Interest

The decision demonstrates an important distinction between the corporate right itself and the family-property claim arising from the funds invested in the company.

If jointly owned funds were used to form a contribution to a company’s charter capital, subsequent disposal of the corresponding corporate interest does not necessarily eliminate the other partner’s economic interest.

The relevant remedy may instead take the form of monetary compensation corresponding to the partner’s share of the contribution.

In this case, that meant compensation representing 1/2 of the relevant charter-capital contribution.

The practical significance is substantial where one party controls the corporate interest and is therefore capable of transferring it while a family-property dispute remains pending.

Article 74 Applies to Property Acquired During Unregistered Cohabitation

The parties in this case were not formally married.

The Supreme Court referred to Article 74 of the Family Code of Ukraine, which regulates property acquired by a woman and a man who live together as a family without being married to each other or to another person.

Under Article 74, property acquired during such cohabitation may belong to them as joint property, unless otherwise established by a written agreement between them.

The provisions governing spouses’ joint property are applicable to such property.

The case therefore confirms that the absence of formal marriage does not, by itself, prevent the application of Ukraine’s joint-property regime.

What matters is whether the parties lived together as a family and whether the disputed property was acquired within the legal framework contemplated by Article 74.

The Supreme Court’s Decision

The Supreme Court agreed with the lower courts’ conclusions concerning compensation for the relevant contributions to the companies’ charter capital.

The Court found no basis for reversing the judgments in this respect.

In particular, the Supreme Court accepted the appellate court’s conclusion that disposal of corporate rights while the case was pending did not deprive the claimant of the right to compensation corresponding to 1/2 of the respondent’s contribution to the charter capital of the relevant company.

Accordingly, the claimant’s economic interest could not be defeated merely because the respondent no longer held the corporate rights when the court ultimately determined the dispute.

On 11 March 2020, the Supreme Court left unchanged the relevant part of the decision of the Lutsk City District Court of Volyn Region dated 20 March 2019 and the judgment of the Volyn Court of Appeal dated 15 August 2019.

Why This Decision Matters

1. Corporate assets can become relevant to family-property disputes

Where family funds are invested in a company, the resulting corporate structure does not necessarily place the economic value outside the scope of a property claim.

2. The source of the charter-capital contribution matters

The courts examined whether the contributions had been formed using funds belonging jointly to the parties.

This can be more important than the formal registration of the corporate rights in only one partner’s name.

3. Disposal of corporate rights does not necessarily eliminate the claim

Transferring corporate rights during pending litigation does not automatically prevent the other partner from seeking compensation.

4. Compensation may be the appropriate remedy

The relevant family-law claim does not necessarily result in direct division of the corporate interest itself.

Where appropriate, the claimant may instead be entitled to monetary compensation representing their share of the contribution to the company’s charter capital.

5. The principle can apply to unmarried couples

Article 74 of the Family Code may extend the joint-property regime to a couple living together as a family without a registered marriage.

Lions Lawyers’ Analysis

This decision is particularly relevant to family-property disputes involving business owners, entrepreneurs and privately held companies.

Corporate interests create a more complex problem than conventional marital assets such as apartments or vehicles. The formal holder of an interest in a limited liability company may be only one partner, while the economic resources used to create or finance that interest may originate from property belonging jointly to the family.

The Supreme Court’s approach shows why the analysis should not end with an extract from the corporate register.

The litigation may require reconstruction of the financial history behind the corporate interest: when the company interest was acquired, when contributions were made, what funds were used, whether those funds constituted joint property and what happened to the corporate rights before or during the proceedings.

The decision is also significant from an asset-preservation perspective. A transfer of the corporate interest while litigation is underway does not necessarily make the underlying family-property claim disappear. Depending on the circumstances, the dispute may shift from direct treatment of the corporate interest to a claim for compensation reflecting the claimant’s economic share in the contribution.

For parties involved in disputes concerning businesses, this makes documentary evidence particularly important. Corporate registry records, company documents, banking records, evidence of contributions to charter capital and documents concerning subsequent transfers of corporate rights may all be relevant to establishing the economic history of the asset.

Lions Lawyers advises clients on family and property disputes in Ukraine, including division of marital property, corporate interests, business assets, compensation claims, property acquired during unregistered cohabitation, real estate and cross-border family matters. We provide full-service legal representation as well as standalone legal opinions, enabling clients to assess their existing strategy and, where appropriate, identify alternative legal approaches.

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