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The division of a farm on divorce can be a highly complex and sensitive matter.
The court is often faced with a dilemma in weighing up the need to provide for the non-farming spouse fairly on divorce whilst preventing irreversible damage to the farm.
Why are agricultural divorces so complex?
There is a wide range of reasons why divorces involving an interest in a farm can be laden with complexity:
- Lack of liquidity – although farms are lucrative assets, the capital is tied up in the buildings and surrounding land.
- The farm buildings and surrounding land may be valuable assets, whilst the business may yield only a light income stream.
- Farms often consist of matrimonial and non-matrimonial property.
- Prior to the marriage, a prenuptial agreement may have been entered into to protect farm interests.
- The farming enterprise may consist of several businesses, each yielding an individual income stream.
- Third parties, such as other family members, may have an interest in the farm.
- The farmland may be rented.
- The farm is likely to have been passed on through the family for generations with the intention that this will continue in the future.
- The farm could be a company (with a complex corporate structure), partnership or sole trader. If the farm is a partnership, there may not be a written agreement in place.
- The farm may form part of a trust.
- Income generated from the farm can be a result of the contributions made by both spouses, albeit the farm was inherited by the farming spouse.
- The farmhouse, which will often be the former matrimonial home, can be a significant asset. Often, one spouse will wish to remain living in the property but will be unable to buy out the other spouse without selling off a significant proportion of the farming land.
As a result, valuing farm buildings, land, agricultural stock, and machinery is a highly complex task and requires the assistance of a RICS surveyor, who will need to be jointly appointed by both spouses.
Potential solutions for division of a farm on divorce
Often, the courts are required to adopt creative solutions to resolve the issues faced with the division of a farm on divorce.
The following options have been utilised by the courts when handling the division of farming interests on divorce as part of the financial settlement:
- An Order for Sale – in White v White, it was contemplated that a farm may need to be sold in order to meet the needs of both spouses.
- One option is for part of the farm to be sold off. For example, outlying sections of land could provide a way of generating liquidity whilst preventing significant damage to the farming enterprise. This can be a particularly effective solution where outlying sections of land have development potential. This solution has been the preferred option in a number of decided court cases.
- Part of the farming land could be sold to the other spouse, who can then lease it back to the farm.
- The Courts are aware that farmers are often keen to avoid the prospect of sale of the farm. Alternatively, the farming land may be transferred to one of the parties in exchange for a lump sum payment, potentially by way of instalments over a number of years. This assumes that there is sufficient income from the farm to fund the payment of a lump sum.
- In a situation where the former matrimonial home (the farmhouse) or other asset is held on trust as part of a nuptial settlement, it may be possible to seek to vary a nuptial settlement. In Quay v Bran [2015], 2FLR per Coleridge J at [59] said that "the essential features of a postnuptial settlement seems to an existing disposition in favour of one or other or both of the parties to the marriage, in their capacity as husband or wife, and for their present or future benefit." The court only has the power to vary assets within the nuptial settlement. If a marital farmhouse has been settled on trust, the trust may extend to the whole beneficial interest in the property or merely the right to occupy. In the absence of a trust deed, the court will look at any further evidence of the settlor's intentions and the parties' conduct.
In farming cases, variations of settlement applications can arise as follows:
i. the marital home may be a farmhouse occupied by the parties but held on trust for future generations of the family. If this trust is a nuptial settlement, it may be open to variation to provide access to capital. The property could be sold, remortgaged or provided as a place to occupy by the non-farming spouse for the rest of their lifetime.
ii. If the farmland is held on trust and the trust structure is relied on to oppose an order for sale, a variation application may free up the land from the restrictions of the trust.
iii. If other assets of the marriage are held in trust, a variation application may release assets so as to enable the farm to be retained intact.
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One spouse can retain the farming company, whilst the other spouse is awarded the farmhouse as the former matrimonial home.
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Award substantial maintenance payments in return for a smaller lump sum
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Let relations assist with raising capital.
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Sell part of the farmland and provide for a lease of the land back to the farm.
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Investigate development potential and suggest ways this can be developed as an independent business.
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Transfer illiquid assets to both parties so that they have a stake in illiquid assets.
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Impose a deferred order for the sale of the farm.
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Make enquiries with Agricultural Mortgages Corporation Plc, which specialises in long-term agricultural secured loans.
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Investigate the potential of assigning tenancies.