Why is asset valuation important when a farming relationship breaks down?

A relationship breakdown is often stressful, with couples having to divide their belongings to achieve a fair financial settlement. For farming families, unique and complex challenges can arise following a break-up and the subsequent division of assets.

Farming businesses, says Samantha Sinclair, Head of Family Law at Ware & Kay incorporating Pearsons & Ward Solicitors in Malton, York and Wetherby, are often passed down through many generations. There are frequently third parties who can claim an interest in the farm. Accurately valuing all farming assets and determining who owns what is therefore vital before a financial settlement can be worked out.

 As with any other split, the aim when a farming couple divorce is to reach a fair financial settlement, taking into account the contribution each has made to the farm, the needs of any children, whether the assets are subject to an inheritance or trust, the income from the farm and other sources, and any pre/ post nuptial agreement in place regarding the farm.

The starting point is to give consideration to the equal division of the matrimonial assets on divorce. Since many farms are asset-rich but cash-poor, paying the departing spouse their share as a cash settlement, thus allowing the remaining spouse to continue the farming business, is often challenging.

Courts are often reluctant to order that a farm be broken up and a farmhouse sold, if this would destroy a thriving business. Solutions could include selling assets to raise the required lump sum, transferring ownership of land with a condition that it is let back to the farming spouse so the farm can continue to derive the same income from it, providing the departing spouse with income over time until the settlement sum is paid off, or forming a partnership/ limited company to manage the farm and its assets jointly.

However, the court can make orders for the sale of the farm, or parts of it, if this is necessary to produce a fair outcome.

Before such measures can be explored however, the couple need to:

• Calculate the value of the parts of the farm and its assets (including land, buildings, machinery, livestock and any business structures) which are owned by one or both of the couple.
• Assess what is owned by others through, eg, a partnership or limited company. Any third-party ownership and interests must be identified early as the interested parties may need to be involved in the negotiations and/ or joined to the couple’s financial remedy proceedings.
• Determine how much income is generated from the various farming enterprises (eg, rents, licences, farm produce, or diversification projects).
• Gauging the worth of intangible assets (eg, farming subsidies and grants).

Whatever settlement is agreed, tax implications should always be considered. Beneficiaries of divorced farmers may have to pay extra inheritance tax; capital gains tax may become due if assets are transferred after the divorce; and, while the transfer of assets under a divorce settlement is not subject to income tax, if income-generating assets are transferred, the interest and dividend income will be taxable. 

How we as your solicitor can help

A specialist family law solicitor can refer you to experts to value your assets and/or restructure the farming business; draft a post-nuptial agreement (dealing with inheritance and trust property) and negotiate a fair financial settlement in the most tax efficient way.

Please contact Samantha Sinclair, Head of Family on Malton 01653 692247, York 01904 716000, or  Wetherby 01937 583210 or email  samantha.sinclair@warekay.co.uk.