Ukraine seems to be quite friendly jurisdiction for entering and exercising marriage contracts. However, there are plenty of issues to be taken into account before you can be assured that after entering marriage contract with your spouse all pecuniary interests are protected.

This article addresses the main tips that will help you to choose the most efficient way to share the spouses’ property and prevent long-lasting property disputes.

What is marriage contract under the Ukrainian law?

Ukrainian legislation and practice supports intention of spouses to govern their own relations. At the same time this right is not absolute.

Pre-nuptial agreement under foreign law vs marriage contract under Ukrainian law?

Ukrainian law provides the option for the couples who are already married or are going to marry in the nearest future to govern their property relations during the marriage at their own discretion. However, Ukrainian law recognizes the notion of marriage contracts, unlike pre-nuptial agreements (“prenups”).

In contrast to prenups, establishing the property and financial rights of each spouse in case of divorce [1], marriage contracts regulate property relations of the couple from the date of marriage. In particular, pre-nuptial agreement governs relations only if the couple divorces. If the marriage is not terminated, prenup does not come into effect. On the other hand, marriage contract is one of the sources for governing spouses property relations in both cases: during their marriage or in the case of divorce.

It is worth saying that Ukrainian legislation recognizes marriage contracts concluded abroad. Such contracts are enforceable in Ukraine unless they do not contravene the mandatory rules of Ukrainian legislation.

In addition to it, marriage contracts in Ukraine have other peculiarities.

Who and when may enter into marriage contract?

Only married couples or couples that have applied to the Civil Registry Office for registration of marriage may conclude a marriage contract. In other words, it is possible to enter such agreement at any time after you have officially become a bride and a groom. However, under Ukrainian law the contract will become valid only after the official registration of marriage.

The Parties may choose Ukrainian law as the law governing their marriage contract if Ukraine is:

• lex personalis of one of the spouses;
• the state where one of the spouses has a place of habitual residence;
• the state where the immovable property is situated (the contract may cover respective immovable property).

What is the procedure of entering marriage contracts in Ukraine?

It is not too complicated to enter marriage contract in Ukraine. Both parties have to appear before a Ukrainian notary public official and sign the contract in front of him.

What issues may be and may not be addressed in the marriage contract?

1. The couple may govern only property relations.

Marriage contract deals only with property relationships and specifies the property rights and duties of the couple as the spouses or the parents. It is possible to prescribe arrangements for:

• the legal status of joint property;
• the order of property division in case of marriage dissolution;
• the legal status of separate personal property;
• the use of personal or joint residential property etc.;
• determination of the date of beginning of the co-residence period without marriage registration [2].

It is prohibited to govern nonpecuniary relations of the parties and each provision that intends to govern such relation is deemed to be invalid.

2. There is no exhaustive list of issues that may be addressed in the marriage contract.

There is a general rule for governing private legal relations, including family relations: the person may do everything that is not prohibited by the law. Enforcing this principle, the Supreme Court of Ukraine held that the parties do not have the right to govern their relations at their own discretion only in limited cases when:

• there is an expressed prohibition in civil legislative act;
• the prohibition is implied by a legislative act;
• such agreement contradicts the substance of the parties’ relations.

For instance, the marriage contract may not narrow the scope of the child’s rights established by the Family Code and it may not put one of the spouses in extremely unfavorable material situation.

In other words, the marriage contract is valid if it does not contradict the mandatory rules of the law and basic moral rules of the society [3].

3. Any property may be subject to marriage contract.

Existing or future property

The couple may agree on the fortune of the property that is already possessed by the couple or will be acquired in the future. It is not prohibited to prescribe the fortune of the house that had not been built yet.

Personal or joint property

The couple may prescribe rules for joint or personal property as well as the regime of ownership: parties may change the ownership for particular item from joint to personal and vice versa. At the same time, it is prohibited to pass ownership rights for property that must be registered, in particular immovable property. This rule leads us to the next important peculiarity.

4. The couple does not have the right to change title for registered property, but may determine legal regime of such property.

It is crucial that marriage contract under the Ukrainian law may not include provisions on changing the title for the property that is to be registered, inter alia immovable property.

For instance, you may not prescribe that “after entering this contract the car owned by John becomes the property of Maria”. On the other hand, provision “The car registered to John`s name is his personal property, but may be used by Maria” will be enforceable.

The general formula of Ukrainian legislation looks like “each spouse has equal rights for all matrimonial property without determination of precise rights for each item”. However, it is possible to agree that precise item is subject to personal ownership of one of the spouses or the spouses joint property and define the shares of each spouse in such item.  Even if in the future such person changes his mind and claims such agreement as invalid, Ukrainian courts tend to dismiss such a claim since “other decision will be in contravention to the contract”[4].

Thus, the parties may agree that precise property is the personal property of one of them despite it was bought during marriage. But it is crucial that such property must be registered at the name of the person that owns the property.

5. The marriage contract may cover the fortune of the property acquired during co-residence period prior to the marriage, if the couple has been married later.

This conclusion appears from the Ruling of the Supreme Court of Ukraine [5]. In that case the Plaintiff tried among other issues to challenge the provisions of the marriage contract about the fortune of the flat purchased during co-residence period before official marriage registration. The Supreme Court of Ukraine held that “the parties have a right to determine legal regime of property acquired during their co-residence prior to registration of marriage”.

6. The marriage contract may state the date of the beginning of co-residence period before the marriage.

The parties have the right to agree on the date that is to be considered as the start point of the co-residence. From this point all property is a joint property of the parties unless otherwise is prescribed by the marriage contract.

The Supreme Court of Ukraine held, that there are no reasons to prohibit parties to agree on the date of the beginning of their co-residence period in the contract since it does not contravene the mandatory rules of law [6].

7. The marriage contract may not place one spouse in an «extremely unfavorable material position».

«Extremely unfavorable material position» means that the question for the court is whether the spouse has been placed by a marriage contract in a position significantly less favorable than the position he or she would have enjoyed under the general rules of Ukrainian legislation. According to these rules all property obtained during the marriage is going to be divided between the spouses in equal shares 50/50.

Therefore, it is vital that provisions of a marriage contract comply with the principle that «each party eats what he/she kills», meaning that each spouse owns property acquired himself or herself during the marriage. For instance, everybody gets consideration individually from the contract which he or she is party to; assets acquired during the marriage that are subject to mandatory registration (houses, land plots, cars) are owned by the spouse on whose name these assets (movable or immovable) have been registered.

The burden of proving the extremely unfavorable material position rests on the party that claims to be in the mentioned position. The Supreme Court of Ukraine stated that this term is evaluative and must be proved by the Party that invokes it [7].

Is the marriage contract an ideal solution for governing matrimonial relations?

We outlined the main issues related to entering marriage contracts in Ukraine. This information may help you in drafting enforceable contract in the course of recent court practice. However, it is worth saying that marriage contracts are still not too widespread in Ukraine. Despite significant professional focus on marriage contracts, the last are not the best option for governing property relations between spouses. There are many reasons for it:

• moral ill-preparedness of couples to regulate pecuniary relations since it may string up relations;
• there is always a risk that the other party will file a claim with the court demanding to held marriage contract as invalid as it places this party in extremely unfavorable material position. Even if the claimant fails to prove his allegations the court proceedings may last for years.
• The notary or other authority may get information on the existence of marriage contract only after voluntary disclosure by one party.
• The marriage contract is not a document that evidences title for goods, unlike certificate of ownership or agreement on division of spouses` property;
• The marriage contract may determine spouses shares in joint property. However, for real division of property the couple needs to get court decision or enter agreement on transfer of the property from one spouse to another, that is called the agreement on property division.

We would like to consider the agreement on property division as one of the optimal solutions to govern legal relations of the spouses.

The agreement on division of spouses` property.

In the contrast to marriage contract, the agreement on division of spouses` property is a document on transferring of title. This means, that if somebody contests or disclaims your property right to some estate you may present the abovementioned agreement as the proof of your ownership. Moreover, unlike marriage contracts, it is possible to transfer the property rights for immovables under the agreement on division of spouses` property.

Why is it so? With the best will in the world notary does not have any possibility to check whether a particular person has been a party to marriage contract. The reason is that marriage contract is not registered, as well as any information from such agreement is not included into any official State Registries.

Thus, the notary may take into account the terms of the marriage contract only if the parties voluntarily inform about it. Meanwhile, the agreement on division of spouses` property as well as other agreements on transferring property title do not have any chances to be hidden from the notary and the public. All transfers of property under such agreements are reflected in the State Registries, while the agreement itself is the property title document. However, the agreement on property division could deal only with existing, but not the future property.

Thus, if you want to divide the property formally and univocally, to be sure that the property cannot be claimed by the other spouse or his successors, it is better to choose the agreement on division of spouses` property rather than marriage contract. The spouses may also opt for entering marriage contract and after that conclude the agreement on division of property.

Conclusion

Marriage contracts are recognized and enforceable under Ukrainian law. Recent court practice supports spouse’s decision for governing their relations in the way, different from the common rules. This article addressed some tips for making decision to enter marriage contract more acknowledged. On the other hand, we suggest that agreement on division of spouses` property is one of the most effective alternative ways to determine spouse’s pecuniary relations if the parties are looking for some ultimate decision.

Notes:

1. Prenuptial Agreements, available at: http://family.findlaw.com/marriage/prenuptial-agreements.html
2. The Supreme Court of Ukraine, the Ruling dated 28 January 2015, No. 6-230цс14за, Verdictum database
3. The Ruling, supra note 2.
4. The Appeal Court of Kyiv, the Order dated 04 March 2015, No. 22-ц/796/3320/2015, Verdictum database (upheld by the Ruling of High Court for Civil and Criminal issues dated 18 May 2015)
5. The Ruling, supra note 2.
6. The Ruling, supra note 2.
7. The Ruling, supra note 2.

Irina Moroz, Partner at AGA Partners,
Olga Kuchmiienko, Associate at AGA Partners

The article is available in Ukrainian only.

The article is available in Ukrainian only.

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Iran. The country with enormous trade potential and a juicy market for many foreign companies around the globe. Following partial lifting of sanctions in Iran, it is expected that more and more businesses from different industries will enter the Iranian market. Needless to say, along with the development of international trade in Iran more disputes and arbitrations involving Iranian companies will emerge.

In the meantime, the author of this post has already faced the case where the arbitration clause with Iran-based company provided for arbitration at the non-existent Iranian arbitral institution. This case is a good illustration of what problems and dilemmas arise when the parties agree on such a pathological clause.

Arbitrating or litigating?

Imagine you are instructed to bring a claim. You look at the relevant arbitration clause in the contract, but you realize that it refers to a non-existent Iranian arbitral institution. What are your first thoughts? – One of the first questions that crosses the lawyer’s mind is whether this clause is enforceable. In simpler terms, the question is whether to arbitrate or litigate.

The positions of Iranian lawyers in this respect differ significantly. Some lawyers think that such an arbitration clause is unenforceable in Iran. According to them, provided the parties do not agree on another arbitral institution, they are left with no other choice than to litigate. On the other extreme, there are practitioners who believe that the parties should arbitrate in existent Iranian arbitral institutions. There are also Iranian lawyers who do not conclude whether the clause is valid or not, but who, nevertheless, advice to resort to litigation.

It can be said that the practice in many countries points towards arbitration since there are plenty of cases where arbitration clauses that refer to non-existent arbitral institutions were enforced. For instance, in the case HKL Group Co Ltd v Rizq International Holdings Pte Ltd [2013] SGHCR 5 the arbitration clause referred to the non-existent “Arbitration Committee at Singapore under the rules of The International Chamber of Commerce” (paras. 1-2). Despite the absence of this arbitral institution, Singapore High Court stayed court proceedings in favour of arbitration on

“[…] the condition that parties obtain the agreement of the SIAC or any other arbitral institution in Singapore to conduct a hybrid arbitration applying the ICC rules, with liberty to apply should they fail to secure any such agreement.” (para. 37).

Judge Jordan Tan AR has explained the enforceability of the arbitration clause by referring to the following reasons (para. 27):

“[f]irst, it clearly evinces the intention of the parties to resolve any dispute by arbitration. Second, it provides for mandatory consequences in that if a dispute arises, the matter has to be referred to arbitration. Third, it states the place of the arbitration, namely, Singapore. Fourth, it provides that the arbitration is to be governed by a particular set of rules, namely, the ICC rules.”

In contrast with the Singapore case, the arbitration clause in the case at hand does not specify seat of arbitration. The fact that the parties agreed on a non-existent Iranian arbitral institution does not mean that they have selected Iran as the place of arbitration. This is because the choice of the arbitral institution cannot be regarded as the choice of the seat. However, the arbitration clause is enforceable because it clearly records parties’ intention to arbitrate. This intention is not prejudiced by the mere fact that the selected arbitral institution does not actually exist. This is the main argument in favour of commencing arbitral rather than court proceedings. Undoubtedly, enforceability of such arbitration clauses is in full conformity with the pro-arbitration spirit of the New York Convention.

Even though the pro-arbitration practice with regard to such arbitration clause is far more evident, you are still exposed to the certain risks. On the one hand, if you choose arbitrating, there is always a risk that you will fail in your attempt to commence arbitral proceedings. On the other hand, you definitely run a risk that the court will stay proceedings in case you decide to litigate. This situation plainly causes much uncertainty. Is that a threat to the claimant’s right to a fair trial? – It is not the question of who to blame for such an uncertainty, but rather the issue (along with the main question of the enforceability of the arbitration clause) for the arbitrator’s or for the judge’s (as the case may be) attention.

Which arbitral institution?

Reference to a non-existent arbitral institution creates not only a dilemma whether to initiate court or arbitral proceedings. The next important issue is the arbitral institution which shall substitute the non-existent one. Of course, there will be no problem if the parties select the existent arbitral institution by mutual agreement. But obviously, that is highly unlikely scenario after the dispute has arisen.

One may suggest that the parties’ intentions were to arbitrate at the Iranian arbitral institution. Therefore, it should be the existent Iranian arbitral institution: either the Arbitration Center of the Iran Chamber of Commerce or the Tehran Regional Arbitration Centre. However, given the absence of the choice of the seat of arbitration, it may also be argued that possible options are not restricted only to Iranian arbitral institutions. But what shall the claimant do in such a situation? File a claim in any arbitral institution in any country of the world hoping that it will hear the case?

Ideally, the claimant should select the arbitral institution which will most likely accept its jurisdiction. The problem is how to identify this arbitral institution. First of all, the potential claimant should look for the arbitral institution(s) that is the most closely connected with the case or the arbitration agreement. Once the claimant has identified such an arbitral institution, he should then conduct a proper investigation in order to find out (through relevant practice and the case law) whether it has previously accepted jurisdiction to hear the dispute under similar circumstances and whether it has pro-arbitration approach. Indeed, in Iran the advice should be sought from local lawyers who should assess the prospects of commencement of arbitration there.

First step: court or the arbitral tribunal?

Even if you decide to go to arbitration in Iran and determine the particular arbitral institution, you still have the issue of whether to go to the Iranian court for the appointment of the tribunal or directly submit the dispute to arbitration. In practical terms going to the national court would be an unreasonable waste of time with unpredictable result. For this reason, it is better to have recourse to arbitration directly. Especially, given that arbitral tribunal has a power to rule on its own jurisdiction. But this issue is something that Iranian lawyers also do not have a common opinion on.

Conclusion

Arbitration agreement that refers to a non-existent arbitral institution is always a headache for potential claimants and a room for maneuvers for potential respondent. It creates a number of dilemmas that need to be resolved prior to bringing the case. Iran – is not an exceptional jurisdiction when it comes to solving those dilemmas there, especially given controversial views regarding such arbitration agreements among local lawyers. However, you cannot have a 100% correct recipe for dealing with the issues such arbitration clauses cause. It is very much a matter of the strength of your arguments that the parties’ intention to arbitrate is maintained despite the absence of contractually agreed forum and the pro-arbitration views of the court seized or of the arbitral tribunal (as the case may be). The story in Iran is not over yet. It remains to be seen how it will develop…

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