Divorce or separation can be an unsettling, worrying time for families. There are difficult paths to navigate before individuals achieve a financial settlement and seeking early legal advice is key. Farming businesses are often run in partnership or involve multiple family generations. These complex ownership structures can cause issues when trying to untangle and divide up the matrimonial "pot".
What is in the matrimonial 'pot' to be divided on separation?
Matrimonial property is all the property belonging to the parties (or either of them) at the date of separation, which was acquired by them:
- during the marriage but before the date of separation; and
- before the marriage for use by both of them as a family home, or as furniture or plenishings for such home.
Assets owned pre-marriage or those which are inherited or gifted to either party during the marriage are not matrimonial property, as long as they remain in the same form throughout the marriage. The second part of that sentence is key, and individuals should be aware of 'converting' something non-matrimonial to matrimonial. Conversion can be subtle – say, for example, a married daughter inherits shares in the family farm business from a parent. Those shares would be excluded from the 'pot' (as they are inherited) but if a share restructure was to take place during the marriage or that farm was sold and another purchased, this could inadvertently lead to the shareholding being 'converted' and falling into the 'pot' to be divided on divorce.
Issues particular to farming clients
Scottish farming divorces are niche and have their own issues which can spring up, including:
- The farm, the partnership or the land may be owned by a separate corporate entity. Additional family members (such as grandparents, aunts, uncles and cousins) may be involved in the ownership, not just the separating couple. Working out how to extract the couple and their respective interests in the entity can be difficult, as the court in doing so, will not want to create difficulties for those remaining in the business;
- The valuation of the farm can be a complex area and can give rise to very different opinions. Farmhouses and farmland vary substantially from area to area so there is often a lack of comparable evidence if there are differing valuations. There can also be differing views on the development potential of a farm or additional fields nearby. As well as surveyors to value the buildings and land, valuations will also be required for stock and machinery. The parties' shareholdings or their interests in the partnership may also have a value which would require the instruction of a forensic accountant;
- The farm or parts of the farm could be held in trust or subject to lengthy leases which could prevent the land being sold for a certain period of time. This can give rise to a lack of flexibility when considering options with parties being tied to certain timescales. Penalties, financial or otherwise, may be triggered if an early exit is sought;
- Diversification of farms (eg. holiday lets or farm shops) may blur the lines between what is matrimonial property and what is not depending on when they were set up; and
- Farming families can be cash poor but asset rich. Dividing the value of the 'pot' between the parties usually requires the sale or partial sale of land or assets, borrowing or paying up a settlement in instalments. Often, pursuing any of these courses of action can have an effect on the profitability and/or financial viability of a farming enterprise. Getting the settlement right (both the amount and the structure) is therefore critical to the future success of the business.
It is for these reasons that farming couples are strongly recommended to take specialist, independent family law advice. Planning for the future is key and even if separation is not on the cards, decisions which may make financial sense at the time can have serious family law consequences later. Seeking advice when making any big change (within the family or within the farm) is strongly recommended.
Pre- and Post-Nuptial Agreements
Although not the most romantic of documents, given what can be at stake, it is wise for individuals in a farming family to consider entering into a Pre- or Post-Nuptial Agreement. Doing so can prevent the problem of 'conversion' mentioned above and categorically carve out which assets will and will not form part of the matrimonial 'pot' to be divided on separation and ringfence future assets. Whilst there is a cost for putting such an agreement in place, it is minimal compared to the sums which can be spent in legal fees on a messy and complicated divorce.
In Scotland, provided the content of the agreement is balanced between the parties, they have entered into it freely and it was signed in advance of the big day (best to avoid signing it the night before or in the car on the way to the church!), Pre- and Post-Nuptial Agreements are generally legally binding.
Should you require any advice on any of the matters, please get in touch below