“Lincoln divorce solicitor, Emma Lawler navigates us through the complexities of farming divorces.”
In divorce the legal principles applied in Lincoln farming cases are similar to those applied against other businesses. However farming cases can be complicated for a number of reasons:
Parties to the divorce may be capital rich but income poor. The underlying value of the land and capital assets might be substantial in comparison to the income derived from them.
In a majority of Lincoln farming cases, the relevance of a farm being an inherited asset continues to cause difficulties for family Courts.
What is becoming clearer is that the source of the assets will be entirely irrelevant when examining the needs of the other party particularly where there are children. “Needs” will always trump any argument to ringfence inherited or other non-matrimonial property. Non-matrimonial property usually constitutes assets that have come from outside of the marriage. If needs cannot be met from matrimonial property alone, a Judge will need to look at non-matrimonial assets which will commonly include the farm.
Therefore, unfortunately in the average case, the fact that a farm has been in a family for generations may have little or no bearing on the division of assets on divorce. However in those cases where the assets available for distribution exceed the other party’s needs, a number of issues become relevant:
Generally speaking if a Lincoln farm has been inherited it will be a question of trying to raise capital to meet the housing needs of the wife. The basic requirement when divorcing is for a suitable home to be provided for the wife and possibly the children. It may be necessary to either sell off part of the farm or borrow against the farm to achieve this.
A Court will not want to damage the core activity of the farm and therefore, a Court will deal with this aspect sensitively.
If the farm is owned through the wider family with siblings and/or parents involved, this will require very careful thought. Courts are very reluctant to damage the livelihoods of third parties.
It is relatively uncommon for a Court to order that an entire farm is to be sold. As stated earlier it is usually a question of raising capital for housing purposes, which frequently involves identifying and selling a part of the farm in the event the monies cannot be raised any other way.
If the farm is not a viable business, the Court may be more inclined to sell it. This can cause some tactical difficulties in a divorce situation. On the one hand, if a farmer plays down the income, there will be a question mark about the viability of the farm. Similarly, if the income drawn from the farm is significant, that is income that remains to be shared.
There have been numerous recent cases examining very closely the issues that arise in a farming divorce. One of the most recent was a case AR –v- AR in 2011. The total wealth of the parties was somewhere between £21,000,000.00 and £24,000,000.00. The source of their wealth was almost entirely by inheritance from the husband’s father. The husband was a farmer by trade. Wife argued that the sharing principle should apply taking into account the length of the marriage and the fact that the inheritance was used by the parties during the marriage. She sought 30% of the assets or roughly £7,000,000.00. She asserted that she had needs of £1,500,000.00 for housing and £140,000.00 per year in income.
The husband argued that as a consequence of the source of the assets, the sharing principle should not apply: non matrimonial assets should only be invaded where needs required it. The husband asserted that the wife’s needs should be determined with reference to her housing need and capitalised maintenance.
The High Court Judge established that the parties enjoyed a very good standard of living and that each had contributed equally to the marriage. The Judge set the wife’s housing needs at £1,100,000.00 and her income needs at £115,000.00. When maintenance was capitalised, it produced an award of £3,200,000.00 plus her housing need giving her a total of £4,300,000.00. The Judge considered the husband’s approach was overly rigid and that fairness required a broader approach to the application of the sharing principle to non-matrimonial property. However the Judge firmly confirmed that the sharing principle did not justify any additional or enhanced award above the wife’s needs.
Does it make a difference if the farm is owned in Trust?
Courts tend to respect a “dynastic Trust”. However if the Trust is what is known as nuptial or otherwise relates specifically to the marriage then the Court has the discretion to vary the Trust. The powers of a court are very wide and can involve the sale of assets, the making of any distributions that it thinks is appropriate and the removal or replacement of Trustees.
Courts have more difficulty dealing with Trusts if they are on a discretionary basis. However it does not mean that they are ignored. They may be treated as a financial resource and there will be a careful examination of the history of distributions. The Court can make assumptions that a beneficiary will continue to get certain benefits in the future.
A further way of protecting a farming asset may be the consideration of a Pre-nuptial or post –nuptial Agreement. Some protection can be offered against the consequences of divorce assuming that the agreement provides for needs to be met. Following the case of Radmacher –v- Granatino in 2010, there is significant weight attached to a Pre-nuptial Agreement albeit that expert advice is required to make the agreement as binding as possible as if challenged, Pre-nuptial Agreements may not stand up to judicial scrutiny if the needs of one party are not met.
Ideally, in addition to considering a Pre-nuptial or Post-nuptial Agreement, there should be a very careful examination as to whether a Trust or other such structure can offer protection to the capital of the farm.
Partner, Family Law