Gifting Property to a Relative Will Not Shield It from a Creditor

In its ruling of 30 July 2026 in case No. 756/18831/21, the Civil Court of Cassation within the Supreme Court upheld the decisions of the lower courts invalidating an agreement under which a debtor had gifted one-half of a residential house to her son.

The ruling is particularly noteworthy for the Supreme Court’s assessment of the timing of the asset transfer. The debtor argued that she had gifted the property before a claim for recovery of the debt was brought against her in court. However, this circumstance was not decisive: at the time of the gift agreement, she was already aware of her outstanding monetary obligations.

The debt arose long before the property was gifted

The dispute originated from loan agreements concluded between 2009 and 2011. The claimant’s mother had provided the defendant with a total of USD 38,300. The obligations were not duly performed, and following the creditor’s death, the right to claim repayment passed to her heir.

In 2020, in separate proceedings, the Obolonskyi District Court of Kyiv ordered the debtor to pay UAH 1,172,534 in outstanding debt, as well as court fees.

Enforcement proceedings were opened in July 2021. During enforcement, however, it was established that the debtor had no property against which recovery could be pursued.

The reason became apparent upon examination of an earlier transaction. On 16 August 2019, the debtor gifted one-half of a residential house to her son. She owned no other real estate.

The creditor’s heir subsequently brought proceedings seeking to invalidate the gift agreement, arguing that the transaction had been intended to remove the debtor’s only valuable asset from her ownership and thereby prevent future enforcement.

Court: private-law instruments cannot be used to evade repayment of debts

On 27 February 2025, the Obolonskyi District Court of Kyiv partially upheld the claim and declared the gift agreement invalid. On 16 December 2025, the Kyiv Court of Appeal upheld that judgment.

The courts based their reasoning on the principles of good faith and the prohibition of abuse of civil rights.

The Civil Code of Ukraine does not contain a separate universal definition of a fraudulent transaction — commonly referred to in Ukrainian case law as a fraudatory transaction. Its fraudulent nature is established through the general principles of civil law, particularly the principle of good faith and Article 13 of the Civil Code governing the limits on the exercise of civil rights.

A fraudulent transaction is a transaction entered into to the detriment of a creditor. Its economic effect is to transfer the debtor’s assets to another person, thereby making performance of the debtor’s obligations impossible or substantially more difficult.

The first-instance court specifically emphasised that private-law instruments, including gift agreements, cannot be used as a means of avoiding repayment of a debt or enforcement of a court judgment.

Importantly, a transaction does not have to exist merely “on paper” in order to be considered fraudulent. The fact that a transaction has actually been performed does not in itself preclude its invalidation if it was used to prevent enforcement against the debtor’s assets.

What factors indicate a fraudulent transaction?

In its ruling of 30 July 2026, the Civil Court of Cassation confirmed that both gratuitous and transactions for consideration may be fraudulent.

When assessing a gratuitous transaction, the Supreme Court considers, among other things, three groups of circumstances: the gratuitous nature of the transaction, the timing of its conclusion, and the identity and relationship of the counterparty.

A significant indicator may be the transfer of property to a debtor’s relative, spouse or former spouse, stepchild, or to a related or affiliated legal entity.

In transactions for consideration, additional factors include whether the price corresponds to the market value of the asset and whether the consideration was actually paid.

In case No. 756/18831/21, these factors formed a consistent pattern. The debtor had substantial outstanding debt, transferred her only real estate to her son without receiving any consideration, and was left without other valuable assets against which the creditor could enforce the debt.

The first-instance and appellate courts therefore found her conduct to be manifestly inconsistent with the principle of good faith. The disposal of her only valuable asset effectively rendered her unable to satisfy the creditor’s claim.

There was no court judgment at the time of the gift. Why did this not help the debtor?

This aspect of the Supreme Court’s ruling is particularly important in practice.

In their cassation appeals, the defendants argued, among other things, that the gift agreement had been concluded before the debt became enforceable in the form subsequently established by the court judgment.

The Supreme Court rejected this argument.

The Court took into account that the debtor was aware of outstanding obligations under loan agreements exceeding USD 30,000 and that repayment could be demanded. Nevertheless, she gratuitously disposed of her property without receiving any monetary equivalent that could subsequently be used to satisfy the debt and without retaining another valuable asset from which her obligations could be discharged. Accordingly, the assessment of a potentially fraudulent transaction cannot be reduced to a simple chronological question: which occurred first — the transfer of the asset or the court judgment ordering recovery of the debt?

What may instead be decisive is whether an obligation to the creditor already existed at the time of the disposal, whether the debtor was aware of that obligation, and what consequences the transaction had for the debtor’s financial position. A different approach would effectively allow debtors to remove assets from their ownership during the period between the creation of the debt and the creditor’s commencement of court proceedings.

A gift to a relative is not automatically fraudulent

At the same time, the Supreme Court’s ruling should not be interpreted as meaning that every transaction between a debtor and a relative is automatically invalid.

The relationship between the parties is only one of the relevant factors. Courts must consider the totality of the circumstances: when the debt arose, when the asset was transferred, whether the debtor knew about the obligation, whether the transfer was gratuitous, what assets remained after the transaction, and whether the transaction impaired the creditor’s ability to obtain satisfaction.

This is clearly illustrated by case No. 756/18831/21. The decisive consideration was not simply that the property had been gifted to the debtor’s son. Rather, it was the combination of the family relationship, the gratuitous nature of the transaction, the existence of a substantial outstanding debt and the disposal of the debtor’s only valuable asset.

The first-instance court articulated the broader principle in clear terms: a debtor is not absolutely free in choosing how to dispose of their assets where the result of such conduct is the artificial creation of insolvency vis-à-vis creditors.

The Supreme Court’s ruling of 30 July 2026 continues the development of Ukrainian case law under which an owner’s formal right to dispose of property is constrained by the requirement to act in good faith towards creditors.