Family farms in Scotland are not only a source of income for their owners but also a cherished legacy passed down through generations. Managing these assets can become complex when marriage, separation, or cohabitation is involved. Agreements formulated before or during marriage or cohabitation can be crucial to protect these assets for future generations and to preserve a farm's integrity and sustainability.
Divorce or dissolution
The Family Law (Scotland) Act 1985 provides the framework for financial provision on divorce or the dissolution of civil partnerships. The law provides that matrimonial property includes all property accumulated during the marriage, except by way of gift or inheritance. However, if gifted or inherited assets are used to acquire different property, they can be converted into matrimonial property and subject to division in accordance with the rules set out in the 1985 Act.
Issues relating to the farming community
Farming families face distinctive issues during marital breakdown since farms are often held through complex ownership and business structures. Farms and crofts can be owned or tenanted, and the farming business may operate on multiple holdings with varying ownership or tenancy structures.
When negotiating the division of property on separation where farming or crofting interests are involved, it is essential to have complete information regarding the ownership or tenancy position, the timing of acquisitions and the nature of the business structure, including partnership or shareholders' agreements and the farming business' accounts.
Commonly, farms and crofts (owned or tenanted) and farming businesses are passed down through generations and, if this is the case, (whether or not a party to the marriage inherits the croft or farm before or during the marriage), it is not matrimonial property. However, it is possible to knowingly or inadvertently convert the inherited asset into matrimonial property. Further, that inherited asset can be taken into account when considering the respective resources of the spouses when deciding how the matrimonial property is to be divided.
Prenuptial and postnuptial agreements
A prenuptial agreement is a legally binding contract entered into before the marriage or civil partnership which can determine the distribution of assets, financial responsibilities, and make provision for property division in the event of a future separation, divorce or dissolution.
In Scotland, properly prepared prenuptial agreements in respect of which both parties have had independent legal advice are legally binding contracts which are likely to be upheld if challenged. For the farming community, prenuptial agreements can play an essential role in safeguarding the farm from division or sale in the event of divorce. Farming enterprises often span multiple generations, and an enforceable prenuptial agreement can ensure that the farm remains within the family, continuing to operate without disruption.
Postnuptial agreements are entered into after marriage or civil partnership. They can address changes in circumstances and provide clarity on asset protection and division in the event of separation. They are useful when new assets or inheritances are acquired during marriage or if such assets have been intermingled in some way with matrimonial property.
Cohabitation
There has been a significant rise in couples choosing to cohabit rather than marry, however statistics suggest that cohabitants are more likely to separate than married couples. In Scotland, the law provides a different legal framework for cohabitation, with no automatic right to share in assets accumulated during the relationship. In certain circumstances, one partner can make a financial claim against the other if a partner has derived economic advantage from the contributions made by the other or has suffered economic disadvantage in the interests of their partner or a child.
Cohabitation agreements
Cohabitation agreements have a similar effect to prenuptial and postnuptial agreements, removing the uncertainties presented by the 2006 Act.
For the farming community in Scotland, prenuptial, postnuptial, and cohabitation agreements are a vital insurance policy and tool for protecting agricultural assets and ensuring the continuity of family farms. They provide a mechanism by which couples can take control of the outcome of any future separation, creating a stable foundation for the farm's future. Seeking legal advice and crafting robust agreements can help preserve the legacy of family farms for generations.
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