Future proofing the family farm

Farmers have much to contend with; negotiating the fallout from Brexit, negotiating the “transition period” for the Basic Payment Scheme and having to grapple with the new Agriculture Act 2020 and the present Environment Bill. With all of this going on, it is unsurprising that few give thought to the potential impact of divorce on the business.

Farming families are, however, particularly vulnerable to marriage breakdown. The long hours, sheer exhaustion of manual labour, external pressures of regulation and bureaucracy, and the stresses and strains of managing cashflow issues can all put pressure on the strongest of relationships. From a divorce perspective, farming cases are notoriously difficult and expensive to resolve. They often involve long marriages, problems with liquidity and raising capital, and managing the emotions around inherited assets which are expected to be kept intact to be passed to future generations.

The sale of matrimonial assets as part of divorce can be devastating, involving a potential loss of home, farm business, livelihood and impacting upon other family members who are often closely interwoven with the business.

One of the best investments can therefore be the use of nuptial agreements – both prenuptial (before marriage) and post-nuptial (after marriage). The leading case on nuptial agreements remains Radmacher -v- Granatino [2010] in which the guiding principle can be summarised as:

“The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications, unless, in the circumstances prevailing, it would not be fair to hold the parties to their agreement.”

This case remains particularly relevant to farming cases, and nuptial agreements will very commonly be used to ring-fence non-matrimonial property (i.e. pre-acquired assets, gifts or inheritance) and are highly likely to be upheld by the court, providing needs can be met without recourse to those assets.

It is vital, however, that certain hoops are jumped through in order to establish a successful nuptial agreement. Both parties must provide full financial disclosure. They must each take independent and competent legal advice. They must fully understand what they are signing up to and must not be placed under duress or improper pressure. Nuptial agreements are highly useful in identifying and recording what is ‘matrimonial’ and what is ‘non-matrimonial’ and where one party has made an unmatched contribution, which can be a crucial piece of evidence.

Fairness remains the primary goal, and therefore the court still retains the discretion to make such orders as it sees fit to ensure that there is a fair outcome. Skilled advice from a specialist practitioner who regularly drafts these types of agreements is imperative to ensure that the agreement will not fall foul of the matrimonial court for failing to meet needs. This also requires the ability to work with other professional advisers to achieve the best outcome for the farming client, including liaising with the farm accountants, land agents, and the solicitors dealing with partnership matters, succession planning and wills.

The importance of drawing up a nuptial agreement cannot be underestimated. The farm is central to the family business and is usually the central source of income and a home for several family generations. Each of those generations has a vested interest in making sure that is protected and preserved for future generations.