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Landmark Decision by the Turkish Constitutional Court on Sales Transactions Between Spouses

Landmark Decision by the Turkish Constitutional Court on Sales Transactions Between Spouses

Turkiye
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The phrase "between husband and wife" in Article 278/3 of the Bankruptcy and Enforcement Code No. 2004 [“BEC”] was annulled by the Constitutional Court on March 22, 2022. The annulment will take effect 9 months after its publication, on December 22, 2022.

What Does BEC Art. 278 Regulate?

In the Turkish legal system, a creditor who is unable to collect their debts through enforcement proceedings may request from the court the annulment of the debtor's transactions for the purpose of hiding assets. While Article 277 of the BEC contains general rules on action for annulment of transaction, Article 278 regulates the annulment of gratuitous transactions.

In this context, the article subject to the Constitutional Court decision constituted an uncontradictable assumption where every transaction between spouses and other related parties were considered to be gratuitous. As a result, these transactions concluded within the last two years could be nullified by court decisions. For example, following a reciprocal transaction between spouses, if one of the husband's creditors applied to court for the transaction to be annulled, the transaction between the husband and wife would directly be deemed gratuitous and ultimately invalidated.

The issue was brought before the Constitutional Court with the argument that the uncontradictable categorization of these transactions as gratuitous contracts is unconstitutional. Constitutional Court, in its judgment, decided that the assumption of all transactions between spouses as gratuitous transactions is neither necessary or required for the fulfilment of the purposes, which are to eliminate the difficulties the creditor may experience regarding their burden of proof, or to prevent concealment of assets.

The Constitutional Court further ruled that the assumption established by BEC Art. 278 disrupted the balance between public and private interests, and that right to seek legal remedies and property right were unjustly constrained. As a result, the phrase "between spouses" in BEC Art. 278/3 is removed.

Possible Outcome of the Constitutional Court Decision

As the annulment judgment will take effect 9 months later, the legislative branch is likely to act to alter the relevant part of BEC Art. 278, which was deemed to be unconstitutional, and to replace the uncontradictable assumption envisioned in this paragraph with a disprovable presumption. To put it another way, the problem can be resolved by introducing an amendment that allows the debtor wife or husband to prove that the contract was reciprocal.

In its current form, unless Article 278 of the BEC is amended within 9 months, the provision that establishes the assumption for transactions between spouses will be annulled, and the burden of proof regarding these transactions will shift to the creditor who alleges that the savings are gratuitous and thus invalid. If the Parliament does not adopt a new amendment in the annulled article during this timeframe, it is possible that concealment of assets via such transactions may increase and as a result, disputes would arise.

Finally, if an objection is raised for the remaining part of the article that has not yet been annulled –descendants and ancestors, third-degree relatives, and dispositions between the adopter and adoption– the Constitutional Court may annul it on the same grounds.

By Tarık Guleryuz, Partner, and M.R. Cafer Koc, Legal Intern, Guleryuz & Partners

Guleryuz Partners at a Glance

We are Güleryüz Partners, an Istanbul based law firm, offering high-quality legal services to domestic and multinational clients.

Our team consists of energetic young professionals who are led by talented partners with strong academic backgrounds at prestigious universities in the USA, UK, and Germany, coupled with vast market experience exceeding a decade at top tier Turkish law firms. All our associates are fluent in English and provide legal advice in additional languages such as German and French.

Our practice ranges from complex disputes to sophisticated M&A and finance transactions. We provide niche legal services in a wide range of legal areas such as litigation and dispute resolution, local and cross border M&As, banking, finance and capital markets, venture capital investments and start-ups, and compliance and corporate governance (including data privacy, anti-corruption and white-collar crime, AML, and sanctions).

We value strong communication and information flow among our departments for the perfection of our legal services. This interdepartmental coordination enables us to take a more client-centric approach and to better understand and cater for the client needs. Our business perspective goes beyond providing excellent legal advice to our clients; we also collaborate with them as their business partners and offer them the entire legal ecosystem that they can thrive their business.  

As Güleryüz Partners, we heavily invest in our pro bono projects in Turkiye and work together with institutions, foundations, and other organizations to provide legal advice to the persons in need of help, while acknowledging the high costs usually associated with high quality legal services limit the access to justice for many people.

We also pride ourselves on fostering and promoting a diverse, equitable and inclusive work environment where every individual feels valued and respected.

For further information, you may visit our website at www.guleryuz.av.tr.