Insights

Can Ningbo's donation of the house to its children be revoked after it is in debt?

Ningbo Author：LuXu WANG

after one of the husband and wife owed debts to the outside world, in order to avoid execution, the creditor wanted to know whether the house could be "returned" after finding out ". The conclusion first says: if the debtor transfers the real estate free of charge after being in debt and affects the realization of the creditor's rights, the creditor may exercise the creditor's right of revocation in accordance with Article 538 of the Civil Code and request the court to revoke the gift; However, the right of revocation is limited by the period of double exclusion-it shall be exercised within one year from the date when the cause of revocation is known or should be known, and the maximum of five years from the date when the act occurs. After the cancellation is successful, the property is restored to the debtor's name and the creditor can apply for enforcement.

1. legal basis and exercise requirements

Article 538th of the Civil Code stipulates: if the debtor disposes of the property rights and interests without compensation by giving up his creditor's rights, giving up the creditor's rights guarantee, transferring the property without compensation, or maliciously prolongs the performance period of his due creditor's rights, which affects the realization of the creditor's claim, the creditor may request the people's court to revoke the debtor's behavior. Article 539 stipulates that if the debtor transfers property at an obviously unreasonable low price, assigns another person's property at an obviously unreasonable high price or provides security for another person's debts, which affects the realization of the creditor's claim, if the debtor's counterpart knows or should know the situation, the creditor may request the people's court to revoke the debtor's act. Article 540 provides that the scope of the exercise of the right of avoidance shall be limited to the creditor's claim. Article 541 stipulates that the right of avoidance shall be exercised within one year from the date on which the creditor knows or should have known of the cause of avoidance; if the right of avoidance is not exercised within five years from the date of the debtor's act, the right of avoidance shall be extinguished.

The exercise of the right of rescission needs to meet four requirements: first, the creditor's rights are legal and effective and generally formed before the act of giving; second, the debtor has implemented the act of disposing of the property without compensation (giving the children's property after the debt is owed is typical) or transferring at an obviously unreasonable low price; third, the act affects the realization of the creditor's rights, that is, the debtor's liability property is reduced, no other enforceable property or property is obviously insufficient; fourth, the right of revocation shall be exercised within the period of one year and five years. The scope of revocation is limited to the amount of the claim, and the court generally revokes only the disposition of a significant portion of the claim, rather than the full gift of course.

2. Scenario Breakdown: Revocation Boundaries for Different Gift Arrangements

  1. Give personal property to adult children free of charge after debt: Typical revocable situation. If the donor reduces the liability property and evades the debt by way of a gift, the creditor may appeal for revocation, and the child shall cooperate with the resumption of registration after the gift is revoked.
  2. Gifts to minor children: The same rules apply. Regardless of whether the recipient is of age or not, the gratuitous gift impairs the realization of the claim may be revoked; in practice, attention must also be paid to whether the gift is arranged by divorce agreement (see below).
  3. The divorce agreement stipulates that the real estate belongs to the children: if the divorce agreement stipulates that the shared real estate will be given to the children, the court usually respects it if it is a real divorce arrangement and has nothing to do with the creditor's rights; but if the debt evasion is carried out in the name of divorce and obviously damages the interests of the creditor, the creditor can still claim to cancel or void it. There is a similar judgment in Ningbo: in the case of Ninghai court, the female boss first divorced and transferred 90% of the equity to brother in law at a low price by her husband in order to evade debts. both transfers were found to be invalid in malicious collusion (reported by China's Ningbo net on December 23, 2014)-the court insisted on substantive examination of the disposition of evaded debts.
  4. The real estate is the joint property of husband and wife: the debtor can only dispose of his own share, the creditor can only revoke the gift part corresponding to the debtor's share, and the share under the name of the spouse cannot be revoked of course.
  5. The child pays reasonable consideration and is in good faith: if the recipient child pays reasonable consideration and does not know that the debtor transfers the property to avoid the debt, it is not a gratuitous disposition and is generally irrevocable; but if "the sale is in the name of a gift" and the price is obviously unreasonable, it may still be revoked.

3. Procedure Steps and List of Material Evidence

Creditors are advised to proceed with rights protection according to the following steps:

  1. Evidence of fixed creditor's rights: IOUs, transfer records, effective judgments, conciliation statements, etc. prove that the creditor's rights are legal and valid and the time of formation;
  2. Investigate the transfer of real estate: check the historical registration information of real estate through the real estate registration center, confirm the time and method of donation, and obtain the transfer registration file by the investigation order of the court if necessary;
  3. Assess whether the transfer affects the realization of creditors’ rights: Investigate other assets owned by the debtor to demonstrate that the gift has resulted in a reduction of the debtor’s assets available for satisfying creditors’ claims, thereby rendering such claims unenforceable or substantially impaired.
  4. sue for cancellation within the one-year exorcism period: bring creditor's cancellation right lawsuit to the court of the defendant's domicile, and list the debtor and the donated children as co-defendants;
  5. Application for Property Preservation and Resumption of Enforcement: At the time of filing the lawsuit, simultaneously apply to seal off the gifted property to prevent its further transfer; after the judgment takes effect, apply to reinstate the registration and continue enforcement.

Material list: Creditor's right certificate, gift contract or transfer record, real estate registration inquiry form, investigation result of property under the name of the debtor, evidence that the debtor is insolvent or has no other property available for execution, evidence of the starting point of the cancellation right (when the gift fact is known).

4. Analysis of Common Misconceptions

Misunderstanding 1: All gifts can be revoked after debts are owed.Correct answer: It must be proven that the gift has impaired the realization of the creditor’s rights (by reducing the debtor’s assets available for enforcement or by leaving no other assets available for execution), and that the creditor’s claim arose prior to or concurrently with the gift.

Misunderstanding 2: You can revoke all the gifts of both husband and wife. Positive solution: the spouse of a non-debtor is not a debtor, and the gift of the share under his name generally cannot be revoked, only the part corresponding to the debtor's share can be revoked.

Misconception 3: The right of revocation is not subject to any time limit. positive solution: the right of revocation is limited by the double exclusion period of one year (from knowing or should know the reason) and five years (from the date of the behavior), and it will be eliminated if it is not exercised within the time limit, and suspension and interruption are not applicable.

Misunderstanding 4: After revocation, the house belongs directly to the creditor. positive solution: the revocation makes the act of gift invalid from the beginning, the property is restored to the debtor's liability property, and the creditor is compensated through the execution procedure instead of directly acquiring the property.

Procedure, evidence and cost of 5. revocation litigation

Creditor's right of revocation litigation is under the jurisdiction of the people's court where the defendant (debtor) is domiciled, and the debtor and the donated children are listed as co-defendants when suing. Litigation fees are calculated according to the standard of property cases based on the amount of the subject matter requested to be revoked, and the larger the subject matter, the more advance payment, and it is recommended to apply for property preservation at the same time when suing, to seal up the donated property, to prevent the re-circulation during the litigation period, transfer to a third party, resulting in the judgment difficult to enforce.

The distribution of the burden of proof is worth noting: the creditor must prove that the creditor's rights are legal and valid, the debtor has implemented the behavior of gratuitous or obviously unreasonable low-cost disposition, and the behavior harms the realization of the creditor's rights (the debtor is insolvent or has no other enforceable property); the relative (the recipient child) claims that the gift is paid or pays a reasonable consideration, and does not know that the debtor evades the debt, by its proof-most of the "debt to give housing to children" cases, the gift is not a consideration, the burden of proof of creditors is relatively controllable. After the revocation judgment takes effect, the act of gift shall be invalid from the beginning, the property shall be restored to the debtor's name, and the creditor may continue to execute it accordingly.

Other paths and criminal risks besides 6. revocation

In addition to the right of revocation, it can also be considered to claim that the contract is invalid: if the debtor and the counterpart maliciously collude to damage the legitimate rights and interests of the creditor, they can request to confirm that the gift contract is invalid according to Article 154 of the Civil Code. The two paths have their own advantages and disadvantages-the right of revocation claims to "free disposition + damage claims" as the element, the threshold is relatively low, but is strictly limited by the one-year/five-year exclusion period. If the evidence is sufficient, you can choose one or the other to claim; if the evidence is insufficient to prove malicious collusion, it is safer to take the right of revocation in a timely manner.

In addition, if the circumstances of evading execution by transferring the property after the debt are serious, it may constitute the crime of refusing to execute the judgment or ruling (Article 313 of the Criminal Law), and the creditor may provide clues to the execution court or the public security organ. In the execution procedure, if the debtor has no property under his name but can prove that the property was transferred to his children free of charge, he may also apply to the court to investigate the relevant property clues. For debtors, gifting or transferring real estate does not effectively avoid liability; on the contrary, it may expose them to risks such as rescission lawsuits, enforcement objections, and even criminal liability. Proactively negotiating a resolution remains the most cost-effective way forward.

The Situation of 7. Donated Children and the Advice of Family Internal Disposition

The other side of the debt-owed house donation is that the donated children are involved in the passive situation of the creditor's recourse. For the donated children, there are three main points of defense and self-help: first, keep the evidence of "paid transfer"-if the reasonable consideration is actually paid, keep the payment voucher, transfer record and evaluation basis to prove that it is not a free gift; Second, fix the evidence of "ignorance"-prove that they do not know their parents' debts or do not know their intention to evade debts, and those who have obtained or accepted in good faith can defend in the lawsuit of revocation; third, after being sued, the court will actively respond to the lawsuit-the court will review the gratuitous nature of the gift and the impact on the realization of the claim, the child should submit its knowledge of the situation and evidence, to avoid being sentenced in absentia. If the real estate is the only housing of the parents and the actual support and care of the children after the gift, the actual difficulties of the family can be explained together in the implementation and cancellation procedures, and the court can coordinate the plan on the premise of ensuring basic residence.

For the debtor's family, the better way than "revocation afterwards" is to negotiate in advance: if there is a real debt, take the initiative to negotiate with the creditor about the repayment plan or a reasonable plan to offset the debt with the house; if it is really necessary to dispose of the real estate, choose the transfer with fair price and transparent procedure and keep the certificate, so as to avoid the combination of "low price + related party" being considered malicious. After the risk of revocation, execution objection and refusal, the debtor's credit and family property losses are far greater than the cost of active disposal-it is a more rational choice to replace the fluke of debt evasion with active debt restructuring.

Need to remind the connection of the procedure: the creditor's cancellation right litigation and the enforcement procedure are two different things-in the enforcement procedure, the debtor's gift cannot be "canceled" directly, and the effective judgment must be obtained through the cancellation litigation first, and then the registration and enforcement can be resumed by the judgment; however, if the clues of the debtor's free transfer of property are found in the enforcement, they can be submitted to the court together when applying for enforcement, as the basis for additional investigation and transfer of refused to execute clues. If the right of revocation has been eliminated due to a period of more than one year's exclusion, it is important to check whether there are other paths of malicious collusion (Article 154 of the Civil Code) and claim as soon as possible-delay means that the relief channels are closed one by one, and limitation management is the first priority in such cases.

Whether the gift is notarized or not affects whether the donor can revoke it arbitrarily (notarized gift contract, the donor cannot revoke it arbitrarily, the second paragraph of Article 658 of the Civil Code), but the creditor's right of revocation is aimed at the debtor's behavior of cheating and harming the creditor's rights, which is not limited to whether the gift is notarized or not-even if the gift property has been notarized or even transferred, as long as long as it meets the requirement of free disposition + damage creditor's claim, creditors may still request revocation during the exclusion period. For the debtor, the fluke of "notarization, transfer, hopeless" is not good; for creditors, the discovery of clues is to verify the registration time, as soon as possible to sue, notarized gift documents instead provide clear evidence of the time of the act, easy to calculate the period of exclusion.

There is another supplementary path for the real estate registered in the name of minor children: the creditor can claim that the real estate is actually contributed by the debtor, and the registration is only held on behalf of the debtor, and request to confirm and execute the corresponding share in the execution procedure-the real estate in the name of minor children is not a natural "safe zone", the court will examine the source of contribution and the purpose of registration, and the debt-evading type of holding is also faced with penetrating examination.

Finally, the starting rule is reiterated: the one-year period starts from the creditor's "know or should know" the reason for cancellation (usually knowing the fact of the gift), and the five-year period starts from the date of the gift, whichever expires first. If there is a dispute over "when you know", the creditor shall provide evidence, and the fixed time evidence of finding the gift (inquiry registration, transfer chat record) is equally important.

class case reference: outside the case, the creditor brings the right of rescission lawsuit, and the effective judgment cancels the transfer behavior of the house in dispute in the divorce agreement, according to which there is no basis for claiming the ownership of the house. It can be seen that if the debtor disposes of property free of charge or obviously at a low price, affecting the realization of the claim, the creditor may apply for revocation. Trial court: Ningbo Intermediate People's Court of Zhejiang Province Case No.:(2011) Zhejiang Yongmin Yizong Zi No. 712; Source: Ningbo Local Marriage Case Database.

8. FAQ

Can I revoke the gift of the house to my children after the debt?

If the debtor transfers the real estate free of charge and damages the realization of the creditor's right, the creditor can request to cancel it according to Article 538 of the Civil Code; however, it must be proved that it affects the realization of the creditor's right, and it must be exercised within the period of exclusion.

The divorce agreement stipulates that the property belongs to the children, can the creditor manage it?

In actual divorce settlements, agreements to gift property to children are generally respected; however, if a divorce is used as a pretext to evade debts and clearly harms creditors’ interests, the aggrieved party may seek to have such agreements set aside or declared invalid, and the court will conduct a substantive review to determine the genuineness of the divorce and the associated property arrangements.

What is the term of the right of revocation?

Within one year from the date of knowing or should know the cause of revocation, and the longest period of not more than five years from the date of occurrence of the act, the overdue right of revocation shall be extinguished.

Do the donated children have to pay back the money?

After the gift is revoked, the child shall cooperate in restoring the property to the debtor's name; the person who has paid reasonable consideration and is in good faith is not included.

The gift is the share of the real estate registered in the name of the spouse, can it be revoked?

can only revoke the part of the gift corresponding to the debtor's own share; if the spouse is not the debtor, the share in his name can not be revoked, unless it can be proved that it is a malicious collusion transfer.

Practical Experience of 9. Lawyers

The idea of "giving" the house to their children when they are in debt, thinking that it is safe to change their name, is actually untenable. Creditors may claim the avoidance of such gratuitous disposals of property that affect the realization of claims, or, in the case of a transfer at a manifestly unreasonably low price, when the assignee knows or should have known of the damage to the claim. There are two time thresholds for the right of revocation: it is exercised within a certain period of time from the time when the cause of revocation is known or should be known, and within a maximum of a few years from the date of the act of disposition, it is extinguished within the time limit. It should also be noted that the scope of revocation is usually limited to the amount of the claim, and the court generally only revokes the portion of the disposition equivalent to the claim, rather than of course overturning the entire gift, and the portion of the house that belongs to the spouse cannot be revoked together.

No matter which side you take, the bottom line is evidence. Creditors should prepare three things before filing a lawsuit: the creditor's rights are legal and valid and are generally established earlier than the donation act, and are proved by loan contracts, transfer vouchers, effective judgments, etc. The debtor has implemented free gifts or obviously low-priced dispositions, which are proved by real estate transfer records, donation contracts and materials that the price deviates significantly from the market price. The debtor has no other property available for execution due to this disposition. The kinship of the donee and the debtor and whether the financial transaction is a true consideration are the focus of the court's review. On the other hand, if the donated children claim that the house should not be revoked, they must prove that they paid a reasonable consideration and did not know in good faith, or that the property belongs to the spouse's personal share-"the sale is actually a gift" or the price is obviously low, it is difficult to keep.

As far as the family is concerned, the last thing to expect is to "whitewash" the property with a piece of divorce agreement ". The court usually respects the real and balanced divorce arrangement by assigning all the house and savings to the spouse or children and carrying all the debts on their own. However, if the debt evasion is carried out in the name of divorce, which obviously harms the interests of creditors, the relevant provisions may also be revoked, and if the circumstances are serious, more responsibilities will be involved. The prudent approach within the family is to put the words in a clear place: if the debt does exist, instead of responding passively, it is better to communicate with creditors as soon as possible, verify the debt base, assess the real ownership of the property and the source of capital contribution, and see if it can be resolved through installments and other property settlement. If it is really necessary to arrange for children, it is also important to avoid the most vulnerable combination of "no consideration transfer + no property to execute yourself. Anticipating risks is far less costly than trying to fix them afterward.

It is not a "safe harbor" to give children real estate after the debt: the creditor can file a revocation suit within the exclusion period, and cooperate with property preservation and restoration of registration to realize the creditor's rights. For creditors, after fixing the creditor's rights, they should promptly investigate the transfer of real estate and sue within one year, so as not to miss the deadline for waiting for the execution of the case. For the debtor, the gift cannot avoid the debt, and may also superimpose the risks of execution objection and refusal to execute the liability. For the donated children, paying reasonable consideration and retaining the voucher are the basis for the defense of revocation.