Divorce is never an easy process and, where a farm is involved, it can be especially difficult to resolve. Particular attention will be needed to the assets involved not least as the livelihood of the family as a whole, as well as the separating couple, may depend on the farm’s future.
In many cases, the farm and the farming way of life will also have been passed down the generations and there will likely be an emotional attachment. The main difficulty, however, is that the farm is often both the family home and the business from which income is generated which can make it difficult to divide when a couple separates.
How would the farm be dealt with in the event of a divorce?
When couples look to agree financial matters on divorce, the starting point is for all of their assets to be placed into the ‘matrimonial pot’ for consideration. The assets are then split so as to achieve a fair outcome; this can include the family farm.
When considering how the assets are to be divided, the Court will start by considering the housing need of both parties and any children where relevant; the Court will want to ensure that they are rehoused in an adequate property. When there is no liquid capital, the Court will have to consider whether it is necessary to sell the farm and many families will want to prevent this from happening.
As part of the process, it will usually be necessary to value the farm and when doing so, consider all the assets, not just the land and buildings. This will likely include the machinery and livestock but also intangible assets such as development potential, financial incentives, and subsidies. A valuation would also usually include consideration of the tax implications of transferring and selling assets and also of the sustainable income to be drawn.
We would usually instruct a professional valuer for this task, and it is commonplace for specialist agricultural surveyors, accountants, and other relevant professionals to be involved early on in the process.
Once the farm has been valued, it can be divided in several ways. This sometime does require a sale but might include one party buying out the other’s interest; a transfer with a let/charge back or creating a partnership or limited company so as to manage the farm and assets through that structure.
So, what are the key factors to be considered and be alive to?
- There may be complex business structures such as partnerships or limited companies. A valuation of the farm, land, stock and any business structures will undoubtedly be required as mentioned above.
- Almost certainly there will be liquidity issues, i.e., how cash can be drawn from the business to share the asset base.
- There may be issues around inheritance, trusts and life interests to consider where farms have passed down the generations and which could impact any settlement.
- Due to the dynastic nature of the assets, there may be limited documentation available.
- There will be tax consequences to consider.
- How can the needs of any children and the parties be balanced with maintaining the business going forward.
Does it matter if farm has been inherited and has been in the family for generations?
It’s not unusual for farms to have been inherited by one party prior to a marriage and may also be co-owned with other family members. As such, there can be other parties’ rights and interests to consider. Additionally, many farmers will want to keep the farm because it both generates their income, and they hope to pass it on to future generations.
From the outset, consideration should be given to whether assets are matrimonial or non-matrimonial when looking at how the “pot” should be divided. Inherited assets can fall into the category of non-matrimonial property meaning there is scope for those assets to be “ringfenced”.
Inherited assets are not off the table altogether in the context of a divorce, however. In circumstances where the non-farming party cannot have their reasonable needs met from other assets, then it would be necessary to consider how it might be possible to distribute the capital and/or income from the farm.
Will I have to go to Court?
Whilst the advice that we give as solicitors will be based on how a Court might treat your case, it is usually possible to come to reach agreement without needing to defer to the Court.
If parties are able to stay out of the Court arena, it is often possible to come up with more creative solutions that work for the family as a whole. The family will understand the ins and outs of the farm better than any Judge who could be called upon to decide in the absence of agreement.
Can I protect the farm before a divorce is on the cards?
Some of these issues can potentially be prevented if the parties enter into a pre or post-nuptial agreement. The agreements can be effective at protecting assets such as farms and create the opportunity to consider what might happen to the family farm in the event of separation. They can be very persuasive when coming to a financial settlement and can also prevent lengthy solicitor negotiations or Court proceedings at a later date.
At DTM Legal, we understand the importance of retaining the farm but also achieving a fair financial settlement for both parties.
If you are worried about your position on divorce or if you are a family member with an interest to protect, then early legal advice is key. Equally, you may want to discuss entering into a pre-nuptial agreement to avoid the potential for issues to arise in the future.
Whatever the situation, here at DTM we are able to advice whatever the scenario and help you through the process. To speak to a member of our Family Law team regarding divorce and the family farm call 01244 354835.
