Divorce is always stressful, but for farming families, it can be even more so, with complex business arrangements coming into the mix. But foresight can minimise future problems.
A recent case in Scotland’s divorce court highlighted just how tangled things can be for farming families when relationships break down – and in particular how decisions made for business or tax reasons can have huge consequences if couples later split up.
The difficulties in the case involved the matrimonial pot (i.e the assets that are divided between the spouses if they split), and what was, and was not, included there. It’s a common scenario in farming divorces.
The grey areas
Usually, in Scotland, the matrimonial assets do not include assets which one partner has received as a gift or inheritance. You might therefore imagine that farming settlements would be simple: if the farmer has inherited the farm, it’s not a matrimonial asset.
However, the reality of farming is less black and white. A common scenario is that the farm is restructured into a company (as happened in the case above) or partnership during the marriage, perhaps for tax reasons. Unbeknown to the couple, the farm may now be a matrimonial asset.
Another common scenario is that the couple increase the size of the farm postmarriage, meaning that some elements of the farm may be in the matrimonial pot, and others not.
Added complications
The nature of farming then layers more complexity into the financial settlement
– for example, how to value land and other assets; how to divide assets without affecting the farm’s commercial viability; and how to value the contribution of a spouse who had no formal role but was indispensable to the running of the farm and may even have encouraged starting new enterprises which the farm did not traditionally undertake.
So, on top of legal fees, a contested divorce process can involve large fees in forensic accounting and land valuation.
Farming foresight
Fortunately, it’s possible to avoid or mitigate these situations by following three golden rules:
- One Whenever restructuring a farming business, seek legal advice on the possible matrimonial consequences of the changes.
- Two Use prenuptial or postnuptial agreements to ringfence assets such as land or interests in the farming business.
- Three Regard prenups and postnups as living instruments, so if you acquire new assets, tweak the structure or bring younger generations into the business, check if you need to update them.
Nina Taylor, Partner, Family Law
Susan Law, Partner, Rural Services
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