Farms are tricky assets for the courts in divorce. They are often capital rich, but income poor. When there is a farm which has been in the family for generations, if funds need to be raised to pay off a husband or a wife, this could affect the profitability and long-term sustainability of the farm and interrupt succession planning. This makes divorce a difficult and expensive process, unless the parties have planned in advance.
The land, farm and assets are often held in trusts with complicated structures. The family courts have shown in case law that they try to allow farms which have been passed down through the generations to continue to do so, where possible, especially when the children are part of the succession planning for the farm. It can be a difficult balancing exercise for the courts, dealing with the wish to keep a generational family farm together and balancing the needs of a spouse who is leaving the marriage.
A prenuptial agreement (‘prenup’) is an agreement entered into before marriage that sets out the division of assets and any financial support if the marriage breaks down. It is not strictly binding, but the court should give effect to the agreement unless in all the circumstances it would be unfair to hold the parties to the agreement. Prenups are a useful tool in defining non-marital property such as the farmhouse or land, which may have been held by one family for generations.
Prenuptial agreements are the insurance which can make a difference in the preservation of a farm beyond divorce. They may not feel romantic, but it is important to plan for what might happen. A prenuptial agreement which provides for potential claims and future arrangements and provides for any children of the family has a good chance of being upheld and could make all the difference in the preservation of the farm beyond divorce.
Do ensure both parties enter into the agreement of their own free will. There should be no pressure; both parties should know the implications of the agreement, take legal advice, provide full disclosure, and understand that the agreement will determine the financial consequences of their marriage coming to an end. Do ensure that the prenuptial agreement is drawn up by a family lawyer, at least 28 days before the wedding, and that if the assets are out of the jurisdiction, both parties take advice on what the implications could be in the other jurisdictions.
Don’t enter into a prenuptial agreement that does not make any provision for a party on divorce or seeks to prevent a party from applying to the court for financial provision. These would be automatic red flags to a court and it is likely the prenuptial agreement would not be upheld.
By Natasha Grande, Partner and Head of Family at Wilsons Solicitors LLP.