Divorce is rarely straightforward, but where the case involves a farm, the financial issues can be particularly complex. A farm may be a home, a business, an investment and a family legacy all at once.
The court’s task is to achieve a fair outcome by reference to all the circumstances of the case. In a farming case, however, fairness must often be considered alongside the practical realities of preserving a viable agricultural business. Early advice, careful disclosure and appropriately instructed experts can make a significant difference.
Difficulties in obtaining valuations
Establishing the value of a farm is not simply a matter of obtaining an estate agent’s appraisal. The exercise may involve agricultural land, the farmhouse, cottages, commercial buildings, development value, tenancies, sporting or mineral rights, entitlements, machinery, livestock and trading stock. Tax implications are also likely to be a significant factor.
It is important that instructions to experts properly identify the basis on which any valuation should be carried out and the underlying assumptions.
Capital rich but cash poor
A farm can be worth a great deal on paper while producing relatively little income. Land and buildings may be essential to the business, heavily charged to a lender or difficult to sell in part without damaging access, infrastructure, scale or profitability. The key issue then becomes a question of how it may be possible to realise a sum to pay by way of financial settlement while preserving the farm for the other party.
The court is not required to preserve a farm at any cost, but it will usually wish to understand whether a proposed sale or division would destroy or seriously impair a viable business. The needs of both spouses and any children remain very important.
The parties may consider various options such as refinancing, transferring non-farming assets, selling a limited parcel of land, providing for payment by instalments, deferring part of a lump sum or restructuring ownership. Often some creativity is needed and each option needs to be considered carefully.
Trusts, companies and wider family ownership
Many farms are held through structures developed over decades. Different parcels may be owned by parents, siblings, trustees, a partnership or a family company. The divorcing spouse may own shares rather than land, may have a partnership interest, or may occupy property owned by somebody else. Conversely, land registered in one person’s name may be subject to competing beneficial interests or longstanding family arrangements. To make matters more complicated, smaller family-run farms can often be run on an informal basis and rely on trust or verbal agreements rather than formal documentation.
It is not uncommon in farming cases for third parties to assert competing beneficial interests in the farm.
Specialist advice can protect both fairness and the future of the farm
Bringing family-law, agricultural, valuation, accountancy and tax expertise together at an early stage can help to identify the key questions and to narrow the issues between the parties.
Due to the substantial complexity involved, farming cases are particularly suitable for out of court dispute resolution. This can help to keep costs down for all parties involved and to allow for a more cooperative and flexible approach.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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