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Protecting the farm

Jun 13th, 2019

Emma Lawler, Partner

The number of farming divorces has risen significantly and understandably farmers wish to protect their assets for future generations. There may also be situations in which older generations are concerned about the impact upon the farm if their children marry and subsequently divorce.

Divorces in farming families can be particularly complicated and difficult to resolve quickly for a number of reasons:

  1. The farm may be capital rich but income poor. This can lead to difficulties raising money to fund a settlement which could lead to some of the assets having to be sold.
  2. Often, partnerships exist with wider family members. It is not uncommon for there to be no partnership deed in place recording their respective shares. This can lead to disputes over the extent of ownership and possibility lead to family members being joined as parties to the financial proceedings between husband and wife. This, in turn, leads to increased legal fees.
  3. Ownership can be complicated by agricultural tenancies and restrictions and/or trust ownership.

Farms have often been inherited from previous generations and there is a sense of pride in building up a successful farming business, to include the acquisition of key parcels of land. Farmers will often feel they are simply custodians of the land, with their aim being to preserve the farm for the next generation. To be in a position of having to sell land to fund a divorce settlement can often be difficult to accept. 

With average prime arable land being valued at close to £9,000 an acre and average grade 3 land at £7,500 an acre, the value of the assets in farming divorces can often be significant. The court will also take into account the value of plant and machinery and livestock, in addition to any goodwill attached to a farming business.

The starting point with most farming divorces is to consider the extent of the “marital” assets. Valuations have to be carried out to include land and property and a valuation of the business itself. They can lead to delay and additional expense. The court will also not consider future unknown market forces such as the impact of Brexit on the farming community and subsidies. To consider a split of assets in a divorce, the court has to attribute a value to assets. Often, one party will wish to achieve a “clean break” settlement which involves them receiving a lump sum cash payment in settlement and the other spouse being left with the risks associated with running a business. Any future fluctuations to the value of the farm would not justify the court re-visiting a divorce settlement if they are simply as a result of changes in the market. If a loan has been taken out to fund a divorce settlement, this can place significant pressure on the farm’s finances.

The court will try to preserve a farm as far as possible. This will not, however, come at the expense of a spouse’s fair entitlement. Any settlement also needs to ensure that financial “needs” are met. This includes items such as the provision of a reasonable house, a car and maintenance, or a lump sum instead of maintenance payments. The question of “need” will always take priority over any other factors in a farming divorce. The higher the standard of living husband and wife enjoyed during the marriage, the greater their “needs” will be interpreted.

Given the complications that can arise, it is advisable to consider entering into a nuptial agreement outlining how you would want to divide your assets in the event of a divorce. This agreement can be entered into before or after marriage. It is sensible to consider entering into an agreement well in advance of any marriage taking place and seeking advice on the issue. A nuptial agreement should be regarded in the same way as an insurance policy. It is a sensible arrangement particularly if you wish to protect inherited assets such as a farm. The agreement will detail what would happen financially in the event of a divorce. Such agreements can provide certainty for husband and wife and for wider members of the family or other partners in the farm.

Whilst nuptial agreements can be challenged in subsequent divorce proceedings, if you have had the benefit of expert advice, such challenges are unlikely to succeed. Certain requirements have to be met to ensure the agreement is as strong as possible.  Any agreement must provide for a fair settlement and should be reviewed periodically to take into account any change in circumstances, including the length of your marriage. Both spouses should have the opportunity to seek independent advice and should have entered into the agreement willingly. The existence of a nuptial agreement can save you a significant amount of time, uncertainty and legal fees in the event of a marriage breakdown. All farming families should treat nuptial agreements as part of their wealth protection financial planning and should seek specialist advice.

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