Keeping it in the Family

Deciding how best to protect a farming business before a divorce or separation occurs in the family, requires careful consideration, planning and specialist advice.

The most prudent advice would be to ensure as far as possible that a number of measures are taken before any dispute leading to divorce or separation arises.

For farming families the buildings and property have often been passed down over generations and the family farm and its diversified businesses are worked in by the family including extended family members brought into the family by marriage. The farm may be run as a limited company or as a partnership; invariably there is no written agreement in place which can create problems when trying to determine how assets should be treated on separation.

Once the divorce process has begun or the knowledge that divorce proceedings are imminent arises, one cannot be seen to move assets or hide shareholdings to avoid the future financial claims on divorce. The courts have in any event powers to set aside transactions that are specifically designed to do this.

There are however, a number of measures that can be taken, such as a Pre-Nuptial Agreement prior to marriage or a Post-Nuptial Agreement shortly thereafter, which can be helpful in limiting claims against the family farm.

Whilst in divorce proceedings the same principles apply to farms as they do to other businesses whereby the courts are able to transfer or sell farmland, distribute business assets or transfer shares between the parties involved, divorces in faming families are more complicated for a variety of reasons such as:-

• The parties are often asset rich and bank poor; lack of liquidity and difficulties in raising capital can mean that making a financial settlement is difficult.
• Ownership considerations often involve wider members of the family and are lifestyle businesses in many cases. A team often supports the running of the family farm and its diversified businesses.
• Farms are invariably also the matrimonial home and this is usually an asset that have been passed down the family through generations. In divorce cases issues of non-matrimonial assets and the extent to which inherited assets have been pooled or become matrimonial property are all significant considerations for the court when deciding how to provide for one of the parties needs.
• The farm may be held under an Agricultural Holdings Act 1986 tenancy or other form of tenancy.
• There may be existing trusts in place.

In the majority of farming cases the relevance of the farm being inherited continues to cause difficulties for the family courts where there is a dispute.

It is important to understand that all assets can be potentially brought into the matrimonial pot for distribution.

According to a survey carried out by the NFU last year the sources of funds for diversification included utilising pension funds held by family members to purchase land.

A growing number of farmers now set up self-invested pension plans (commonly referred to as SIPPs) which give more choice over where to invest than a traditional pension plan and can include farm land and commercial property.

It may be possible for the younger generation to use their pension to buy land or commercial property from the older generation as part of farm succession planning. The land or property would be owned by the younger generation’s pension plan, with the farming business paying a commercial rent. However, as pension assets form part of the pot available for splitting, sharing and distributing upon divorce it is easy to see how arrangements of this nature can be caught in the trap of available wealth to be distributed.

Steps can be taken to mitigate or reduce the risks and protect and preserve the farm assets for future generations including:

• Pre-Nuptial and Post-Nuptial Agreements between spouses;
• Setting up a discretionary trust;
• Declaration of ownership of assets;
• Treating money advanced to family members as loans and securing by a charge to ensure the return of money to the third party upon divorce;
• Cohabitation Agreements for unmarried couples.

It is important to identify property as non-matrimonial property early on and to take steps to protect it. Legal advice should be taken and any agreements, such as pre-nuptial agreements, professionally drawn up to ensure that they can be relied upon subsequently.

If no legal protection is put in place, upon divorce farming assets can be at risk including the original family farm and any diversified business run by the farming team or family.

At Ware & Kay we can help you to reduce that risk. We have expertise in protecting farming families. For further info contact us today through our online enquiry form.