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Farms often involve complex ownership of the farmland, inheritance and third-party issues. This can create complications on divorce.
As the farm is often a “lifestyle business”, the matrimonial home usually forms part of the farm itself. It is unlikely, therefore, that the home can be sold by itself. The farm as a business is sometimes set up as a partnership, sometimes without a formal partnership agreement being put in place, and/or as a limited company, with the family members as shareholders. The involvement of family members creates issues of third party rights as the divorcing spouses are not the only interested parties in the financial outcome.
Farms tend to be asset-rich but not necessarily have that much cash in the bank. Farmland can be extremely valuable, but the income derived from the farm can be relatively modest. However, increasingly, farmers are becoming entrepreneurial in their approach. They may improve their income generation by setting up produce farm shops or workshops, retail franchises, fish farms or opening land or property for tourism and housing development. In this way, the value of the farm and the income it produces can be considerable.
Courts are reluctant to make an order which is likely to damage the core activity or profitability of the farm, particularly when this may result in damage to the livelihoods of other family members who have an interest in the farm. Although the court is unlikely to order the sale of the farm as a whole, it may be necessary to sell of part of the farm or surrounding buildings to raise capital. Alternatively, the spouse who is retaining the farm may have to borrow money against the property.
Ownership of the farm may be protected by a trust, which may have been in place for a number of years in order to ensure that the business stays within the family. However, on divorce, the court may examine the purpose of the trust arrangement and may encourage the settlor or trustees to make available assets to meet the needs of the divorcing spouse or encourage the landowner to make available non-trust assets for the divorcing spouse.
Farmers and Landowners are well advised to enter into a pre or post nuptial agreement prior to marrying. Although prenuptial agreements are not technically legally binding, recent case law shows that courts will attach considerable weight to the contents of the agreement if certain criteria are satisfied. Pre or post nuptial agreements help the court to clarify the couple’s intentions in relation to the division of their assets. This is particularly important, as farms are often inherited and therefore any property or money that was acquired before the marriage, needs to be protected.
At Myerson, we have extensive experience of dealing with the broad issues faced by people going through a divorce involving a farm. We work closely with trusted forensic accountants and chartered surveyors to ensure that the farm is valued appropriately, taking into account all assets.
We can advise on trusts and wealth protection and have specialist experience in advising on land ownership, options, overages and development schemes. We can also advise in relation to corporate and partnership issues.
Myerson are well regarded as a leading firm in the agricultural sector and we are ranked in the Top Tier of Legal 500.