Changes in what qualifies as family require a rethink on treatment of farming assets
Farmers know about the potential threat caused by marital breakdown to traditional holdings. However, remarkably few will do anything about it to protect themselves and their livelihoods. In this piece I will look at the conventional position, the changes in the treatment of the co-habiting partner, and volunteer some ideas about how the economic unit of the farm can be protected against being compromised by these family disputes.
1. Conventional family farm
The traditional family holding will be well known to most readers. Its size and lay out depends on the type of farming carried out. Dairy farms are typically smaller than tillage, with the dairy at the centre of operations, normally close to the family house. Because of lower margins and the mechanised nature of modern agriculture, tillage operations are typically larger and more widely geographically located. However for a number of reasons, including security and convenience the main servicing yard for a tillage operation is also usually close to the family home.
If steps to ring fence the economic integrity of the farm are not taken, the typical farming set up can be compromised if the farm marriage break down. In this case the economic integrity means the ability of the farming assets to generate an income for the farming family.
In the event of marital breakdown the law provides that adequate provision be made from the family assets to each of the partners. What constitutes adequate provision depends on the circumstances of the case. However, certain outcomes are typical; the wife holds on to the family home (at least until the children reach the age of majority or finish their education when it is sold with a pre agreed distribution of proceeds), and the husband pays maintenance to her and the children.
The problem arises where a clean break is sought because relations have deteriorated to such an extent that the wife wants nothing more to do with the husband, and insists on the sale of some of the holding to pursue her entitlement to a share of the family assets. Given this will ruin the economic integrity of the farm (both because of the home typically being at the heart of the operation, as well as shrinking the size of the holding), such an outcome is extremely undesirable and needs to be managed in the interests of both the couple’s income and any of their children.
2. Co-habiting partner
The Civil Partnership and Rights and Obligations of Cohabitants Act 2010 provides what were two individuals living together in a 'committed and intimate' relationship for two years if there is a child, and for five years otherwise, become qualified cohabitants. This entitles the non-asset owning partner to substantial family law rights, including that to adequate provision from the assets of the owning partner’s. These rights have the same potential to derail the economic integrity of the family farm.
3. Some ideas about protecting the asset’s economic integrity
While the Courts have yet to rule definitively on the enforceability of the pre-nuptial agreement, the reality is they are typically entered at a time when there is a significant amount of goodwill between the couple, almost certainly more than the hurt and bitterness caused by the separation. In this regard it is likely that cool heads can bring a greater degree of objectivity to the economic reality of the situation being faced by the couple in the event of breakdown.
To a large extent therefore, the objective of a pre-nup. should be to contain the same provisions as a separation agreement – the adequate provision for the spouse from the family assets while diminishing to the least extent possible the economic integrity of the farm.
I am seeing more and more that farming trade and assets are being carried out by limited companies which are formed for the purpose of the economic undertaking of farming. This makes a lot of sense for many reasons, including;
The certainty of the company paying rent (albeit limited) for the use of the land,
The separation of the farming income and expenditure from that of the family,
The separation of farming assets (tractors & machinery, dairies, stock) from those of the family.
Shares of the Company can be allocated to spouses in pre agreed proportions, and each retain them in the event of marital breakup. The provisions of a shareholders agreement can address what happens the shares or the assets the event of marital breakup, but subject to the requirement that full and adequate provision is made for the spouse.
In addition, somewhat ironically company law protections on minority shareholder rights are more objective and very developed (because they have been reported for many years) than family law proceedings (which are held in camera), and so reasonable behaviour is given greater weight in the event of a family law dispute underpinning it.
That having been said, the ultimate outcome in minority shareholder oppression proceedings is the winding up of the Company and the disposal of its assets, but the same arises in family law proceedings .
Barry Lyons is a solicitor with over 20 years’ experience in litigation, business structuring, insolvency and commercial law. For further assistance regarding queries on the above topic he can be contacted at firstname.lastname@example.org and (01) 539 0060