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How pre-nuptial agreements can preserve family farms

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How pre-nuptial agreements can preserve family farms

Although farming families are often close-knit, the long-hours and pressures of running a business can take their toll, leading to relationship breakdown and divorce.

The often complex nature of farming partnerships, land holdings and other business assets means that divorce settlements can have a profound impact on the form and future viability of a farming business.

Farming families regularly transfer property and assets to their children as part of tax planning but they must also consider what may happen if a ‘next generation’ marriage fails.

Farming families should avoid any misplaced faith in ‘natural justice’, or regard family trusts as an automatic panacea. From the start they should be practical and pro-active in protecting the business, and pre-nuptial, post-nuptial or cohabitation agreements can play an important role in achieving that.

This is because, when a couple divorces, the starting point is that all assets are taken into account, regardless of where they came from and the principles of sharing and needs are the usual driving forces behind reaching a settlement. That means that the farm, even if brought into the marriage by only one party, could be ‘up for grabs.’

The Family Court will take into account factors such as the length of the marriage, how and when the farm was acquired and who else has an interest in the business and land. The longer the marriage, the more likely it is that the farm will be shared.

Any trusts that are in place will be considered but, increasingly, courts look to the presence of pre-nuptial agreements to inform them of the shared intentions at the outset of the marriage and give pre-nuptial agreements great weight when deciding what represents a fair settlement and how the farm should be treated.

So, if you own, or are likely to inherit, all, or part of a farm, and are not yet married, a pre-nuptial or a cohabitation agreement is by far the best way to protect your assets in the event of a separation or divorce. 

Even if you are you are already married, and have been farming for years, you can still  consider entering a post-nuptial agreement with your spouse as a way of clarifying intentions regarding the farming business and these can be tailor-made to achieve your individual preference or wishes.

When divorce is unavoidable, most farm owners’ main concern is to keep the business running and viable.

A properly-prepared agreement is crucial evidence of both parties’ financial intentions and the court will value one which is clear and comprehensive.

To be as secure, and offer as much protection for both parties, as possible such agreements should be prepared by a specialist family solicitor with experience of the particular issues relating to the ownership and operation of farms and who will ensure your agreement is legally compliant.

Farms are generally inherited, evolving through generations with various additions and acquisitions, family members and partners, leading to complications in divorce settlements because of the often-muddled accumulation of land or buildings and a lack of documentation.

On top of this, many family farms are a legal minefield of various used, and unused, buildings, business partners, family members and associated parcels of land, often with third-party interests, such as formal, or informal, tenants. Agricultural land is also often unregistered, creating further difficulties. On top of this, market price fluctuations can effect income.

To understand your business and objectives, a solicitor needs to know exactly what the farm comprises in terms of buildings, land, machinery and livestock; what income is generated and how; who in the family, or wider partnership, owns which assets; the farm’s main business and how it runs from day to day.

A specialist agricultural solicitor will avoid a ‘one-size-fits-all’ approach and consider different options that can work for your family and your joint objectives. They will know many creative ways to resolve financial settlements such as transferring, or leasing, parts of land to your former wife or husband so they can build a home or run an appropriate business, such as equine or dog boarding, a holiday park or market gardening, and enabling the land to return to the farm if they die or remarry.  

If your marriage is failing, or you want to create future certainty for your family as you would with tax planning, ensure you appoint a solicitor experienced with the complexities of farming divorces and pre-nuptial agreements.

This article by Lucy Phipps first appeared in the February edition of Northern Farmer