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Helping to guard your farm assets against divorce

Insights

Pre-nuptial agreements were once hardly worth the paper they were written on, but have become increasingly popular for farm businesses in protecting assets against marital breakdown.

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This was the message from law firm Burges Salmon, which said pre- and post-nuptial agreements were becoming more enforceable and were increasingly seen as a way to protect family farms against the dangers arising from divorce. Senior associate Thomas Boyce and partner Jim Aveline explored the issues.

Asset protection

They said: “Few things are as potentially damaging to a farming business as an acrimonious divorce, so it comes as no surprise that family lawyers are increasingly asked to advise on asset protection for the benefit of future generations.

 

“Set against this is the need to provide fairly and equitably for the spouse and any children in the event of a divorce.”

 

Mr Boyce and Mr Aveline highlighted when people married, a pre- or post-nuptial agreement was the best means of protecting assets.

 

They cited a Supreme Court case, Prest v Petrodel, which provided a guide for the way a court might approach business assets during a divorce.

 

“The case demonstrated that family courts have wide-ranging powers to achieve what they see as fair. Just because assets are held by a company, there may still be jurisdiction for the court to transfer them to a spouse, if necessary to achieve that fair outcome.

 

“It might not seem terribly romantic to ask your future or current spouse to sign such agreements, but in many ways they offer protection to all parties, including children.”

 

The two theoretical case studies illustrate the power of pre- and post- nuptial agreements.

 

Case study one (theoretical)

Mr Bull and his wife have three grown-up children, all of whom are involved in the farming business. All three are about to get married.

 

To protect the business on which he, his wife, their children and future offspring depend, Mr Bull negotiates an agreement whereby all three children and their future spouses sign pre-nuptial agreements.

 

These specify protection for the farming assets but also contain fair provision for the spouses and any children in the event of a divorce.

 

Comments: In any marital agreement of this kind, full disclosure and careful drafting is essential. It may also be necessary to set up some form of financial device to ensure sufficient funds are available should a divorce happen.

 

Case study two (theoretical)

Mr Barley and his wife have a small farming business they have run for many years. Mrs Barley has an ageing relative who farms close by and wishes to gift the land to her but the relative wishes to see the parcel of land kept intact.

 

Mrs Barley has a post-nuptial agreement drawn up which specifies that the gifted land would not be included in any future divorce settlement.

 

Comments: Gone is the idea that transferring an asset into a company puts it beyond the reach of the courts on divorce. While no one sets out at the beginning of a marriage with failure in mind, it is nevertheless sensible to take the view that, sometimes, the worst will happen. Taking legal advice on making a fair and equitable provision for all involved can save financial heartache in the long run.

 

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