Although divorce rates appear to be slightly falling, 2019 figures indicate that as many as 42% of marriages still ended in divorce with farming families by no means immune to these statistics. Charlotte Hurst, a solicitor in Harrison Drury’s divorce and family law team, outlines the complexities involved.
A divorce can be particularly difficult for a farming family when the farm is not only the family business but also the family home. This may also be compounded by the complexity of the farm being the only source of income for the family.
The complexities of a family farm as a business
Whilst the powers available to the court when dealing with a farming divorce are ultimately the same as in a non-farming marriage, there are a number of common threads that run through such cases, making them very difficult to resolve.
The farm is often an inherited asset that has passed through the family for generations. Often there can be great sentiment attached to the land and the farm.
Farming businesses are often modest in terms of income yield, with capital tied up in assets, such as stock and property, meaning that there is a lack of liquidity. This often means that farming assets may need to be sold as part of the financial settlement thus affecting the farms future viability.
To magnify the complexities involved when dealing with farming assets on divorce, the business may also have complicated ownership structures or be held in a trust benefitting members of the wider family. Some of the land may be owned by older generations of the family.
It is not unusual to have a situation where family members are paid an income from farm profits with the intention that they receive a pension income in retirement after they have transferred ownership of the family farm to the next generation.
Matrimonial vs non-matrimonial assets
It is crucial when considering any financial settlement involving a farm to establish what is likely to be considered matrimonial and non-matrimonial property – property that should and should not fall to be divided by the court. The family home will almost always be considered a matrimonial asset when considering a division of assets.
Many may assume that the farm is considered a non-matrimonial asset if it was acquired before the marriage or through extended family, however, this argument for ‘ring-fencing’ may fall away if the needs of the parties, and any dependent children, are unable to be met from the remaining matrimonial assets.
What will the courts consider?
The courts will consider the section 25 (The Matrimonial Causes Act 1973) factors when determining a fair financial settlement such as the income, earning capacity, property and other resources which each of the parties have together with factors such as the age of the parties and duration of the marriage together with other factors. The most important consideration will be the needs of any children.
Under the Act, the court will also need to have regard to “all the circumstances of the case”.
It will need to give consideration to more nuanced or unique circumstances such as how the farm was acquired. For example, is this an asset that has been passed down through generations? It will consider the ownership structure of the business and how any financial settlement may affect third parties. This can mean that an order made in a farming case can be quite different in nature to one simply involving a residential property and pensions.
Can I protect the family farm?
If a family wishes for its farm to be passed to the next generation, even on separation, the parties can enter into a pre-nuptial agreement ahead of the marriage. Although the court will give weight to a pre-nuptial agreement which seeks to ring-fence the family farm, whether or not this is upheld will depend on the parties needs at the time of divorce and whether any other assets are available to help meet those needs.
A pre-nuptial agreement is more likely to be upheld if both parties receive legal advice in advance of signing the document and the agreement is entered into in good time before the marriage, to prevent any claims of duress/undue influence. Alternatively, if you are already married a post-nuptial agreement can be entered into.
If you own a family farm and are considering divorce, it is important that you seek independent legal advice from a specialist family solicitor. For further advice on divorce and the family farm or advice on pre and post nuptial agreements, please contact Harrison Drury’s divorce and family law team on 01772 258321.