Is it possible to divide a mortgaged house upon divorce: Supreme Court's conclusion

The Supreme Court, composed of a panel of judges from the First Judicial Chamber of the Cassation Civil Court, examined a case concerning the division of joint marital property and assessed whether the fact that a residential house was mortgaged could be grounds for refusing to recognize one spouse's ownership right to a share of such property. The Court also reviewed the creditor's arguments that the property division was aimed at avoiding the fulfillment of debt obligations.

Case Summary

The plaintiff applied to the court demanding the division of the spouses' joint property. She stated that she had been in a registered marriage since 1989, and in 2008 the spouses purchased a residential house with joint funds, with the ownership right registered in the husband's name.

According to the plaintiff, later the husband began insisting that the house was his personal property and demanded that she leave the residence. In this regard, she requested recognition of her ownership right to one-half of the house as property acquired during the marriage.

During the case review, it was revealed that the house purchase was financed by a loan obtained by the husband from a bank. To secure the loan obligations, the house was mortgaged. Subsequently, the loan claim was transferred to a new creditor who, in 2018, filed a lawsuit to recover the debt.

After the debt recovery claim was filed, the wife filed a lawsuit for the division of the spouses' property. Later, the creditor claimed that such division was aimed at preventing enforcement on the mortgage object and complicating the execution of a future court decision on debt recovery.

Decisions of Lower Courts

The Kamianka-Buzka District Court of Lviv region satisfied the claim and recognized the plaintiff's ownership right to one-half of the residential house. The court reasoned that the disputed real estate was acquired during the marriage and therefore is an object of joint marital ownership.

Afterwards, the person who became the creditor under the loan agreement and mortgage holder of the disputed property filed an appeal, arguing that the court's decision affected their rights and interests, although they were not involved in the case.

The Lviv Court of Appeal satisfied the appeal, canceled the decision of the first instance court, and denied the claim. The appellate court concluded that the parties used the mechanism of dividing marital property to evade obligations to the creditor. The court noted that the plaintiff was aware of the existence of the loan agreement, mortgage, and debt, and therefore her actions together with the husband's were aimed at violating the creditor's rights and avoiding debt repayment.

Legal Conclusions of the Supreme Court

The Supreme Court satisfied the cassation appeal, canceled the appellate court's ruling, and upheld the first instance court's decision.

The court emphasized that Article 60 of the Family Code of Ukraine establishes a presumption of joint ownership of spouses over property acquired during marriage. This presumption can only be rebutted in court, and the burden of proof lies with the spouse who denies it.

The Supreme Court noted that the disputed residential house was acquired during the marriage and therefore is joint marital property. Under these circumstances, the first instance court reasonably divided the property and recognized the plaintiff's ownership right to one-half of the house.

The court separately drew attention to the legal nature of the mortgage. According to the Law of Ukraine "On Mortgage," the transfer of ownership of the mortgaged property to another person does not terminate the mortgage. The person who acquires ownership of such property automatically assumes the status of mortgagor and bears all obligations under the mortgage agreement to the same extent as before the transfer of ownership.

The Supreme Court stressed that the law does not prohibit possessing and using property that is mortgaged. The division of joint marital property, including property that is subject to a mortgage, is not considered a disposal of such property. At the time the house was mortgaged, it already belonged to the spouses as joint marital property by law.

Referring to the legal conclusion of the United Chamber of the Cassation Civil Court dated July 3, 2023, in case No. 523/8641/15, the Supreme Court stated that if one spouse is recognized as having a share in mortgaged property, such co-owner acquires the status of a co-mortgagor.

The court concluded in case No. 446/1842/18 that the creditor's claim of violation of their rights due to the property division is unfounded. The fact that the property is mortgaged does not prevent its division between spouses, since the mortgage remains effective after such division, and the rights of the mortgagee remain protected by law.

Additionally, the Supreme Court noted that the appellate court did not properly establish or verify circumstances confirming that the property division claim was filed based on a prior agreement between the parties to avoid liability under the loan agreement. The appellate court's conclusion about the parties' bad faith was not supported by sufficient evidence.

The Supreme Court also reminded that a person who did not participate in the case has the right to challenge the court-established facts in the general procedure. The mere fact of a decision being made without their participation does not automatically mean their rights were violated or provide grounds for overturning a lawful court decision.

As a result, the Supreme Court upheld the first instance court's conclusion on the division of the residential house as joint marital property and left in force the decision recognizing the plaintiff's ownership right to one-half of the disputed house.

The cassation court's ruling takes legal effect from the moment of its adoption, is final, and is not subject to appeal.

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