A farm is usually a family business, but it’s more than simply an income. It’s an all-consuming occupation and a way of life. Divorce has become part of everyday life and farming families are as susceptible as any other to a marriage failing, however farming divorces are more complex so it’s vital that you seek expert legal advice.
Sally Powell, Executive Partner and Head of the Family Law team at Tees, outlines the challenges faced in a farming family divorce, and identifies steps that can be taken to ensure that the farming business is protected from the outset.
If the worst were to happen and your marriage hits troubled times, we will provide you with the expert legal guidance and support you need.
What factors are considered in a farming divorce?
The primary aim in a divorce separation is to establish what the needs of each party are and how these needs may be met.
The courts have very wide discretion to reallocate assets within a marriage to ensure that both parties’ needs are met for the future. This could mean being forced to sell off land or property in order to raise cash, which will raise some important issues for your farming business.
The first step is to define the assets and decide on how to share assets that have built up during the marriage. The Courts will then seek to ensure each party receives a ‘fair share’. A fair share however, does not necessarily mean equal, and farming cases merit special consideration including:
- Inherited assets are not subject to the sharing principle in the same way
- A farm owned by the wider family, for example with siblings, parents or both, will require careful thought as Courts are reluctant to damage the livelihoods of other third parties
- Provided there are sufficient liquid assets, the Courts can disregard equality in favour of protecting any inherited element
Whilst for non-farming divorces, an equal division of assets and wealth accumulated during marriage is considered a fair divorce outcome, this may not always be achievable for farming families because of the need to preserve assets that were owned long before the marriage.
‘Fairness’ however, still requires financial needs to be met.
What about family members living on the farm?
You may have passed certain farming properties to your adult children or have allowed them to live in them to ensure that the needs of the farm can be met.
Where an adult child has received financial support or housing from a parent during the marriage which is then subject to divorce the Court is able to make an order against the child effectively forcing them to prevail upon parents or the extended family, to provide support in relation to financial settlement.
It is therefore important to be aware of the potential implication of deciding to financially assist children during their marriages. This is particularly relevant where a family’s wealth has been built through the farming generations, and the family want to prevent the farming business being broken up during divorce proceedings.
Do I need to go to court?
Contesting financial matters in Court within a divorce can be very costly and is not the only option open to you.
How can I protect my farm?
Careful planning in advance is extremely important. By doing so, you can structure your arrangements taking full account of the specifics of your farming business and individual family circumstances.
There are several ways you can seek to protect your farming business along with future income streams:
Partnerships are the most common business structure within the farming industry – they are relatively simple and a flexible way to run a farming business. By drawing up a partnership agreement, you will be able to ensure that it is made clear in writing exactly which assets belong to the partnership and which are owned by each partner as individuals.
One way of protecting the family farm is through a family, or discretionary trust. It not only protects family assets but can also divide farm income to minimise tax.
A trust “owns” your family assets such as the farm, investments, home, shares or business.
Trusts can play a key role in protecting family wealth on divorce and can provide a means to assist adult children without risking farm assets. However, trusts should always be considered as part of a long-term strategy to protect family wealth, as a trust set up when a marriage is on the verge of breakdown is unlikely to withstand the scrutiny of the courts.
What about a pre-nuptial agreement?
Pre-nuptial agreements are an effective way of legally protecting your farming business, together with property and money acquired before a marriage. Entering into such an agreement before marriage allows you and your future spouse to plan how you will divide current and future assets should you divorce in the future.
However, there is something to be said for ensuring that the spouse marrying into the farming family does not feel excluded through entering a prenuptial agreement and, through the marriage, feels invested in the future success of the farm and business.
If a prenuptial agreement might be considered, it should be done so in light of the joint commitment of the marriage. It is that commitment which will make the farm succeed as well.
It is important to take expert legal advice from a family lawyer who specialises in dealing with farming assets on divorce to ensure that the terms of the pre-nuptial agreement are sufficiently robust to be upheld by a court.
Certain criteria must be fulfilled for the agreement to be upheld and it is important for both parties to receive independent legal advice.
Expert legal advice for over a century
Tees’ heritage and culture has been rooted in the local farming community in and around East Anglia for well over a century, and its legal experts, many of whom are from farming families themselves, have decades of experience in dealing with all aspects of legal farming matters.
We are here and ready to help you.