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Divorce and cohabitation issues for the farming family – part 2

Divorce and cohabitation issues for the farming family – part 2

In my previous article, I considered the issues that can arise for married couples in the farming sector who are separating/divorcing. In this article, I will look at the issues that can be encountered where a couple is not married but simply living together (or “co-habiting”).

Having taken a straw poll at a number of events at which I have spoken, people generally do not know what rights, if any, couples who co-habit have in the event that they separate.  Some think that after a certain period of time they have the same rights as married couples.  Some think they have no rights.  Both of those are wrong!

The Law

Until 2006, couples who co-habited and separated had no specific rights attributable to the fact of their (former) relationship.  To address the fact that more and more couples in Scotland are living together but not married, legislation was enacted in 2006 which gave “cohabitants” (couples of either sex who live together) certain rights.

Cohabitants are defined as a man and a woman, or two persons of the same sex, who live together as if they were husband and wife or civil partners – essentially couples who live together in a committed relationship.

Rights on Separation

The starting point for cohabiting couples is the opposite of that for married couples – neither has a right to share in assets of the other built up during the relationship. There is no “pot” of assets to be divided; instead each party simply keeps what they have.

However, in certain circumstances, one partner can make a financial claim against the other. Such a claim can be made if a partner has derived economic advantage from the contributions made by the other, or if a partner has suffered economic disadvantage in the interests of their partner or a child.  The claim must be made within 12 months from the date of separation. After that period expiring no claim can be made in any circumstances.

The Position In Practice

The above principles are best illustrated by a basic example:

Jack owns and operates a dairy farm. Jack and Jill start going out together and after a short period of time Jill moves in with Jack.  They “cohabit” for many years. Jill works full-time on the farm. She puts in significant hours. She receives no salary.  The business flourishes. It develops from a small dairy enterprise into a large dairy enterprise but continues to be run in the name of Jack as a sole trader. Jack and Jill then separate.

There are no property rights as such following separation.  The starting point is that each partner keeps their own assets – so leaving Jill with nothing.  However, focus can be given to corresponding economic advantages and disadvantages.  Jill can therefore seek to argue that she has put in lots of work for no reward and has helped generate a business of significant value in which she will not share as a consequence of the separation.

There is not a huge amount of case law in this area as to how the legislative principles are to be applied and ultimately if agreement cannot be reached, it comes down to the discretion of a Court.  Very little guidance is available to the Court and it can be difficult to predict with certainty what the outcome in such cases will be. In one of the leading cases in this field the female partner was awarded about one third of the male partner’s assets but it  is difficult to see any real science behind how the Court came up with the figure they did.

What Can Be Done?

The last thing any separating couple wants is legal uncertainty! The best way of removing that uncertainty is to make provision for what might happen in the event of a separation.  Those are generally referred to as “Cohabitation Agreements” and have similar effect to Pre-nuptial and Post-Nuptial Agreements covered in my previous article.

A couple can make provision in a contract as to what is to happen in the event of their relationship ending and that therefore removes the uncertainties presented by the legislation and the Courts’ interpretation of that legislation.

Additional Issues for Farming Families

Just as for married/divorcing couples, and as noted in the last article, the valuation of the relevant interests and the financing of any settlement can be  complex and problematic. Farming businesses often significantly increase in value over the years of a relationship, but the value tends to be tied up in land, buildings and fixed equipment used in the farm business rather than in liquid cash. Financing a settlement while retaining the assets that make the farming business viable can be challenging.

The particular complexities in this area add all the more weight to ensuring that provision is made before the event rather than after the event if at all possible, whether couples are married or cohabiting.   That can assist in providing certainty, and ensuring that farming assets that have been in a family for generations don’t have to be sold to finance a separation.

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