Divorce and assets: protecting the family farm

Deciding what happens to assets upon a divorce is a common issue. For most people, this means sorting out what to do with the family home as well as any savings and investments. However, for some, it is far more complicated because it may involve a farm and often the related business.

Add to that the fact the farm might have been in your family for several generations and you may be left wondering what is going to happen to it all when one member of the family gets divorced.

The division of marital assets

There are many factors that a judge takes into account when considering the division of the marital assets. The first issue that needs to be established is the extent of the marital assets. If a couple meet, marry and then buy a farm together, and that farm and business develops as a result of their joint ventures, then at the end of the relationship it is going to be considered a marital asset (absent any argument from one party for enhanced financial contribution at the start of the couple living together). But what if the farm has been in your family for generations?

Inherited assets

Pre-acquired wealth, be it money, property or a business, is not prima facie considered a marital asset. However, this does not mean that it is automatically ring-fenced (i.e. left out of the equation when dividing finances on divorce). If the marital pot is insufficient to meet the needs of both parties and any dependent children, then the court can “invade” the non-marital assets to meet those needs.

The needs may include a house for the ex-spouse and any dependent children to live in, a car, moving costs, stamp duty, and capital to pay off debt. Income needs include outgoings for bills, food, mortgage payments, running costs of a car, holidays, and school fees.

Raising capital to pay a lump sum order as part of a financial settlement may require some thinking, especially if the money is not just sitting in a bank account. Judges can give one party a period of time to raise the funds by whatever means they see fit.  If they cannot raise sufficient funds themselves within that timescale, the judge can order the sale of part or the whole of the farm, depending on how much is to be raised.

What can you do to help protect a farm that has been in your family before you and your ex-spouse met – or in some cases, were even born?

There are several options available to you including:

1. Don’t get married

This is the cheapest and most effective way to protect yourself. Not very romantic, but very effective. There is no such thing in England and Wales as a common law spouse. You can live with someone for 50 years and they are not entitled to anything from you on separation purely on the basis that they happened to be living with you. This means no claim for spousal maintenance, no claim against your pension, no claim against the capital that is in your sole name, no claim on your business (unless they are a partner or shareholder in the business) and no claim on your house (unless your ex can claim a resulting or constructive trust). There are a couple of further caveats; for example, if you have children, then claims can be made for child maintenance, the purchase of a house to home the children whilst they are dependent (then the house reverts to you) and capital lump sums to meet the children’s needs.

2. Prenuptial agreement

Whilst these agreements are currently not legally binding, if entered into correctly, they can provide significant evidential weight to any financial settlement on divorce. It is therefore, in nearly all cases, better to have one than not have one. Prenups set out how you want to deal with your finances in the event of a divorce and allow you to separate your assets from shared assets. A prenup can also help protect any inherited wealth and/or assets by ensuring they remain in the family if the marriage breaks down. If the farm is also a business, having a prenup in place will ensure that the business remains separate from marital assets and liabilities. While often viewed as unromantic, where assets and/or a business is involved, a prenup is extremely important to help protect your wealth.

With a bit of foresight and planning, you and your family farm can better weather the turbulence that divorce can bring.

For advice on this and other rural and agricultural legal issues, please contact Sarah Thompson.