Changes to family law could make it easier for farming couples to ensure their children’s inheritance of the farm is safeguarded if they divorce.
Aimed at saving court time and money, Family Procedure Rules came into force on April 6 which insist that couples pursue alternative dispute resolution (ADR) as a way of reaching a settlement if they are divorcing, rather than relying on going to court.
Two forms of ADR are mediation and collaborative law, both of which lean on specially trained solicitors or facilitators to help couples reach amicable agreement over what happens. This approach is widely seen as being more beneficial to safeguarding the future of “going concerns”, like a working family farm, so that the division of assets does not cripple the business.
However, lawyers are warning that farming families must look at the longer term when reaching agreements with estranged spouses to ensure successions and inheritances are safeguarded for their children
“In many professions, if there is a business involved in a divorce or family break-up, it may be that part of it has to be sold to ensure one party gets their share of the settlement, with the starting point often being a 50/50 split,” said Andrew Woolley, managing partner with Woolley & Co family law specialist which has an increasing number of farming clients.
“This may suit other sectors but in farming circles, it is just not practical. Thrashing out a deal over complicated holdings and where the assets include animals and very specialised, expensive machinery, would make it difficult for day to day life to continue as normal on the farm. Selling off part of the business could leave the remainder in no fit state to continue as a functioning, viable farm. This will not only “hurt” the partner who wants to stay in the business but also affect the next generation who might expect to take over the farm in due course.
“A sensible attitude needs to be adopted by couples in this situation and the ADR route may be the best forum in which to do this. Going to court can be a combative environment and bring out the worst in people. A judge may make an emotionless decision based on the cases presented, though there is case law to suggest that farms can be seen as exceptional cases, which has the ultimate affect of crippling the farm. Through ADR, a better solution should be easier to find.”
Farming remains one of the UK’s most traditional professions with a greater number of children taking on the family business and making a career out of it than almost any other sector. However, if a divorce settlement is not handled correctly and sensitively, there may not be much to inherit, which is particularly worrying against a backdrop where more people are going out of the profession and margins for many are shrinking.
Aggregate figures for 2010 show a 4.3 per cent drop in total farm incomes compared to previous years and analysts suggests it could be as much as 12 per cent down on 2008 figures.
“If a farming family is looking likely to divorce, both parties need to seek expert advice from an experienced family lawyer advise on the best path, particularly in the light of the new rules,” added Andrew, based near Stratford upon Avon in rural Warwickshire.
“These cases are far more complex than most and there needs to be an understanding of the farming process, way leaves, boundaries, farming payments etc. In the meantime, farm life goes on even if domestic life is falling apart. Any distraction from the day-to-day running of the farm could be damaging and an aggressive divorce dispute could be shattering for the next generation’s succession or inheritance.
“Inherited farms and landed estates will probably not be the subject of equal division on divorce, but each case is decided on its own facts and the courts have made many changes, and caused much surprise and often consternation, in recent years. “
There are steps that can be taken in advance to limit the potential reduction of an estate or farm by a later divorce. One option is to pass assets to the next generation sooner rather than later, particularly if they are old enough to take over the management of the farm or estate. Bear in mind though that such a disposition made less than three years before divorce proceedings will be presumed to have been made with the intention of defeating or reducing the other spouse’s claim and so may not be entirely beyond the reach of the law.
Another possibility might be to settle assets into a trust from which the settlor – the person who settles property on express trust for the benefit of beneficiaries – is excluded. Again though, there is case law to suggest that if the settlor retains a high degree of control over the trust assets, the court could effectively “look through” the trust arrangements.
The most simple solution may be a prenuptial agreement which sets out how assets like the farm business and land should be divided if a relationship breaks down irretrievably. While these are still not absolutely legally binding in the UK, since 1997 there has been a clear and increasing trend by English judges to pay greater regard, in appropriate circumstances, to the provisions of a pre-nuptial agreement, if it is drawn up correctly with both parties receiving expert advice and agreeing to its contents.
For more advice or to request a free half-hour consultation to discuss your options, call 0800 321 3832.