It was once assumed that marriage was for life. For a farming family, this meant the farm would remain safely in the hands of the family passing from generation to generation.
But times have changed, and a large proportion of relationships do not last ‘until death do us part’. Many end in divorce, sometimes in acrimonious circumstances.
Is there anything that can be done to ensure that if a divorce occurs, the farm is not sold to meet any settlement (undermining the viability of the farm for future generations)?
Pre-nuptials and post-nuptials
Increasingly, judges recognise that if individuals wish to regulate their own financial affairs and can reach an agreement that lasts through thick and thin, the Courts will not interfere with those agreements – provided a number of conditions are met.
These agreements are either pre-nuptials – concluded and agreed well before the marriage, or post-nuptials – those agreed after the marriage. The conditions to make any agreement legally binding (as far as possible) include the following:
- Both parties must take independent legal advice well before any agreement is concluded.
- There must be no sense of the agreement being entered into under pressure. The agreement must reflect what two reasonable people have agreed in light of all of the circumstances of the situation.
- There needs to be a clear explanation of the background situation, including who owns and who owes in terms of assets and liabilities prior to the marriage.
- The financial provision that is to be made for the spouse who leaves the relationship needs to be ‘reasonable’ for their needs if the relationship ends. That includes making provision for suitable housing and, depending on whether they are self-sufficient from an income perspective, making some provision for their income needs as well.
- Foreseeable events such as the arrival of children needs to be anticipated and provided for. Where this would make a difference (such as the need to make greater provision for housing or income needs for a wife and children), that should be specifically addressed in any agreement.
Does talk of pre-nuptials or post-nuptials put people off marrying?
If handled correctly the reverse is often the case. These days, people think twice about getting married with all the rights and obligations which go with that for fear of the financial consequences of finding themselves in a divorce Court.
It helps enormously if the agreement process is conducted with the full and active involvement of the person entering into the marriage from outside of the farming family and their advisors at an early stage. Getting people round the table to be open and clear about fears and concerns will avoid conflict arising at a later date.
Such a meeting should be seen as a problem solving exercise and should be conducted as soon as the idea of marriage has been raised so that these discussions can take place whilst everyone is thinking about how to make matters work.
What if matters are concluded only shortly before the marriage?
If a pre-nuptial is presented to the spouse joining the farming family just before the marriage, there is a real possibility that later he or she will say that she was placed under pressure, perhaps under the threat of cancellation of the wedding. In this case, the agreement may be found to be invalid and the farm at risk. It is far better to start these discussions when everyone wants the wedding to take place and understands that the farm is a special asset intended to provide for the generations to come.
Are there any other tips about how farming affairs should be arranged?
Financial advisors often focus on the tax benefits of the creation of partnership, or property being placed in the name of one person rather than another. They don’t always think through what the implication might be on divorce, where the starting point will be to clarify a person’s legal entitlement before considering whether that legal entitlement should be changed in any way.
As part of the consideration for the creation for a “nuptial” that is relating to a marriage, agreement consideration should be given to how farm accounts are written, how capital accounts are apportioned and how land is owned or held in Trust for the rest of the partnership. An accountant is best placed to advise on these matters, but it is useful to review the accounts at the same time as considering a nuptial agreement so there is consistency between the two.
How much does it cost?
Lawyers charge an hourly rate, so the more discussion and agreement that can take place without involving solicitors the easier it will be for lawyers to convert any agreement into a legally binding form. In broad terms if the work involves the creation of the legally binding agreement with several meetings the costs are likely to be £2,500 to £5,000 plus VAT. This may sound a lot, but it is a fraction of the money people typically spend on lawyers during a divorce when matters are not clear. The outlay should be viewed as an investment to protect the farm for the future.
Normally the person asking for the pre or post nuptial would pay for the legal expenses of the other spouse, but most of the work should be done by the solicitor who is instructed by the farming family.
What should we think about before approaching a lawyer to request a pre-nuptial agreement?
- It is extremely helpful to have a complete list of assets and liabilities – what you owe and what you own together with a list of the incomes you each have.
- If there are farm accounts and partnership agreements it will help to have the most recent set and copies of all relevant partnership agreements.
- Think through all the ‘what if’s’ – all the things that could go wrong and what would be a fair outcome in any of the given circumstances. For example, the outcome could be different if the marriage is of short or long duration; if there are children and if they are young or grown up; whether there are or could be any health problems. Every situation is different and you are best placed to know potential needs in your particular circumstances.
You may feel you would like to have a preliminary chat before opening discussions with the spouse who will be joining the farming family. If so, please do not hesitate to contact us. We offer a free initial exploratory meeting to talk through your situation and plan with you the most efficient way to deal with what can be a very sensitive subject.