We regularly act in divorce cases where one or both of the parties are involved a businesses. Many businesses have their own, sometimes unique, characteristics. However, it would be true to say that divorces between parties who are involved in farms and landed estates are some of the most complex when it comes to resolving financial issues. It is for that reason that our expertise and experience in this specialist area is so important to our clients.
Why are farming cases so complex?
One of the primary problems when dealing with the financial aspects of a divorce involving farms is that the assets and financial resources may not be owned personally by the two parties. The most common types of ownership are:-
- an individual, the assets having been passed down through individual owners from one generation to another over decades, sometimes even centuries;
- a partnership (frequently a husband and wife and sometimes including one or more of their children;
- a limited company, sometimes with many shareholders (sometimes from outside the direct main farming family), some of whom may be resident abroad or be other companies; or
- a trust created by a will or a deed made during the lifetime of an individual owner.
In other cases, whilst there has been no legal documentation prepared, an individual owner might have made an oral promise, even confirmed in a letter, to another person, often a child of the family, that in due course the land will belong to that other person. If there is then a divorce between the owner and his/her spouse, the issue may well arise as to whether that promise can be regarded as legally binding and, if so, with what consequences for the financial arrangements to be made as part of the divorce.
What is a “fair” solution in farming divorces
In previous articles, we have often emphasised that the resolution of financial issues arising on divorce is to find a solution that is fair. In most cases, the starting point in the search for a fair solution is to consider an equal division of the available finances accumulated during the marriage. However, in some instances, and farming is one of them because of the need to preserve assets, most usually the farmland which may well have been owned long before the marriage, a fair solution will still have to accommodate, as best as is possible, the reasonable “needs`” of both parties. The requirement to meet needs will invariably outstrip the desirability of preserving assets owned by one party prior to the marriage.
It is not only in farming cases that the law requires both parties to be make a full disclosure of everything that they each own, either in their sole names or in their name jointly with someone else. In the case of businesses in which one or both of the parties are involved, including farms, the accounts for the last three or so years will be required, often with management accounts up to date from the last audited accounts.
It may also be necessary to identify income and spending, particularly if it is not clear from the accounts whether part of the expenses of a business include some household items.
In farming cases, it will frequently be necessary to have an independent valuation of the assets, including the land, so that an assessment can be made of the extent of the assets.
Protection of assets
- Where the parties are jointly involved in the farming business and, for example, there is a joint farming bank account, it is often prudent to ensure that a limit is placed on the level of the overdraft utilised on the account. The same applies to credit cards.
- It is sensible if both parties keep an eye on the farming stock and make enquiries if there appear to be significant changes. A check should also be made to ensure that the proceeds from any sales e.g. of livestock, goes through the farming bank account and that the paperwork is kept in order.
- A holding will should be made, particularly if a third party has become involved.
- If assets and, most particularly, land are held by the parties as “joint tenants” (so that on the death of one of the joint owners, the ownership passes to the surviving owner(s) automatically) then arrangements should be made to “sever” that joint tenancy. The land will then be held by the joint owners as “tenants in common” and will not pass automatically, but only in accordance with the will of the deceased owner.
- If divorce proceedings have been issued, it may well be prudent to arrange for a restriction to be placed on the ability of an owner of an asset which is to be considered as part of the divorce, to dispose of that asset until matters are resolved.
Obtain good representation
The importance of obtaining the services of a solicitor experienced in this type of case cannot be over-emphasised. Sometimes, speed is of the essence.
A solicitor with specialist knowledge of farming cases will not only know the best approach to adopt but will also save you money because of his/her familiarity with the problems affecting this type of case. That solicitor will also keep you up to date with the likely costs involved.