A divorce can be traumatic but when a divorce occurs in a farming family, it can be particularly tough when the farm is not only the family business but also the family home.
In my experience as a family finance and divorce solicitor in Cheshire and Whitefield it is not uncommon for spouses to stay in unhappy relationships for fear of separating and the consequences on the family farm.
Some may question why divorce and a family farm are different to any other type of divorce. After all every divorce can be painful. However, with divorce and the family farm, often the farm has been in the family for generations. There is therefore great sentimental attachment to the farmhouse and land. Not only that, the farm is normally both the family home and the source of income for all the family, including extended family.
Adding to the complexities, the farm or some of the land could be owned by the older generation or parents may be paid an income out of farm profits as a means of providing a pension after they have transferred ownership of the family farm to a son or daughter.
Therefore, where do you start when facing the prospect of a divorce and sorting out what happens with the family farm.
In an ideal world, a farming family takes advice before handing over ownership of the family farm to a son or daughter. Often a farming family is told by a private client solicitor that it is tax efficient to transfer ownership of the farm to the younger generation to minimise the payment of inheritance tax. That is all very well but unless specialist family legal advice is taken the family may be reducing the risk of paying a big inheritance tax bill but exposing the family farm to divorce claims.
Some farmers think that if the family farm has been gifted or inherited it will automatically be ring-fenced from any financial claims on divorce. That is not the case.
Even if an asset is:
- Owned in the sole name of one spouse; and
- Was owned by the spouse prior to the marriage ;and
- Has been in the family ownership for a long time
Divorce financial claims can be made against the asset. In a farming family, the asset in question is normally the farm and land.
When a couple get divorced all the assets they own, individually or jointly, are taken into account when negotiating a financial settlement or the court makes a financial court order.
Although the court will factor in the relevance of a family farm having been inherited or gifted by a husband or wife the court has to look at the husband and wife’s needs and, most importantly, the needs of any children.
Prenuptial Agreements and the Family Farm
If a family own a farm and want to leave it as a legacy or gift to a son or daughter the best option to protect the family farm from divorce claims is for prenuptial agreements to be signed at the time of any marriage.
Although the prenuptial agreement can try to ring-fence the family farm from any financial claims in divorce, whether or not the prenuptial agreement will work fully depends on the family needs at the time of the divorce and the availability of other assets to meet divorce financial claims.
In any family situation involving a family farm, divorce solicitors recommend legal advice is taken on the benefits and potential disadvantages of a gift or transfer before the family farm is transferred to a son or daughter. Advice can then be taken on the option of a prenuptial agreement or, if they are already married a post nuptial agreement .
Divorce and the Family Farm
If you are getting divorced and one of you owns a family farm then it is particularly important that both husband and wife get expert legal advice from specialist divorce and family finance solicitors.
It is likely to be the case that the farm owner wants to keep the farm and the spouse that does not own the farm wants it to be sold to raise money to buy a house to rehome him or her. There may be mention of the land’s increased value if farm buildings or land could potentially get outline planning permission so it can be developed for housing.
In any divorce and financial proceedings, assets need to be valued. That applies just as much when the asset is a family farm. A specialist valuation will be needed to look at the value of the farm and land as well as any ‘’hope’’ value in relation to planning permission and development opportunities or the sale of part of the acreage. In addition, the value of the farm asset will depend on the income produced.
If a farm is owned in the sole name of a husband or wife (rather than ownership being shared with parents and siblings) then it may be possible to sell part of the land or a farm building or to raise capital by mortgage to meet a husband or wife’s divorce financial claims.
When it comes to a family farm and divorce, the court may view the family farm as a non-matrimonial asset and hence will not say that the value should be shared equally between the husband and wife. However, the bottom line is that a husband or wife may get an award that affects the family farm if it is the only way that their housing and other needs can be met.
When a divorce solicitor is giving legal advice to either a farmer or their spouse the aim is to achieve a financial solution that provides a home for the husband, wife, and children and ideally does not affect the continued viability of the working farm. This can require creative resolutions to secure the family farm for future generations.
For advice about divorce and financial claims or for information about prenuptial or postnuptial agreements please call Robin Charrot on +44 (0) 1477 464020 or contact Robin Charrot by email at [email protected]