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Avoiding further fallout from farming divorces

26 Jul 2021

Navigating divorce proceedings is a difficult and emotionally-challenging enough process for any couple, but when set in the context of a farming business, its innate complexities can make things even more intense and problematic.

While the same questions will get asked about the business assets owned by any divorcing couple, including who owns what, what is each asset worth, how income is derived and how much is there, finding clear answers in a farming scenario can often resemble detective work worthy of Hercule Poirot.

Take, for example, what should be the simplest question – who owns a specific asset?

The cross- and inter-generational nature of farming enterprises, and the land and asset ownership arrangements that go with it, generally mean that ‘simple’ has nothing to do with the resulting answer.

Finding documented proof of who owns what is not always easy as assets may have been within the family for generations, while there is the distinct possibility of third-party claims on the asset from the parents, children and siblings of the person getting divorced, not to mention other farm shareholders and business partners.

Consideration also needs to be given to many other issues, including the land values involved, any rights associated with them, such as mineral exploration rights or development potential, and the impact on the value of the farm/farming business of any major developments that have occurred during the marriage.

As is so often the case, ensuring that there is clarity well before such clarity is actually required by going through detailed planning processes is the optimum way to structure the ownership of your farm and assess the value of its assets.

It often requires an imaginative approach to be taken, along with early professional advice, to work through all the potential situations and how they can be addressed fairly and efficiently.

Countryside

Will, for example, a farming business remain viable if some of its assets and/or land are sold off as part of a divorce settlement?

Different ownership structures need to be carefully considered to help identify what is best for the farm business in question.  Formal farming partnership agreements can be set up in order to provide clarity about who owns what, and farms can also be placed in to trust, if it’s appropriate to do so.

Documenting the outcomes of all these discussions is then absolutely essential to show how conclusions have been reached, who has been involved in reaching them and what the implications are for the resolution of any future disputes.

Such work should form part of the wider succession, tax and inheritance planning process for the business, and will benefit the business in the long-term even if, as everyone would hope, there ends up being no reason for the ownership structures to be brought to the fore.

Nobody wants to think about the potential breakdown of a marriage, especially at its beginning, but being sensible enough to do so in a considered and detailed way can prevent a lot of unnecessary problems and extra heartache arising further down the line.

Get in touch with Christian Butler with any questions or if you require any further information.