Divorce and the family farm

Imagine that you have been given some farmland by your parents, either as a tax planning exercise or as part of a wider succession plan for a family farm. Sometime later, you get married.

The land, at its very source, is what we call a ‘non-matrimonial’ asset, having been gifted to you prior to your marriage. This means that if your marriage ends in divorce, it is arguable, subject to the question of ‘need’, that it should be retained by the party who introduced the asset; in this case, you.

However, during your marriage, a decision is made to use funds acquired during the course of the marriage, as a result of your joint endeavours, to develop the farm land. This might mean that the two of you have added a farm shop or another development that has increased the land’s underlying value, paid-for by money the two of you earned.

Difficult questions will then arise as to whether, and to what extent, the property which was non-matrimonial has been ‘mingled’, thereby acquiring ‘matrimonial’ status. This is important because matrimonial assets are, generally speaking, subject to the ‘sharing principle’ which determines that they should be equally divided, unless there is a compelling reason to do otherwise.

This is an increasingly common scenario that we are seeing in a farming context. Here at Wilkin Chapman, we are also seeing more and more cases where land that was gifted to one party in a marriage, is farmed by a partnership, as part of the partnership capital, with the two partners being the married couple, often on the advice of their accountants. In this situation, it is also arguable that both partners have an interest in the capital of the business, namely the land.

Although each case has to be viewed in light of its particular circumstances, steps can be taken, either prior to the marriage or during its currency, to try and limit the ‘matrimonialisation’ of a particular asset, if desired. One of these is to consider a Pre or Post-Nuptial Agreement.

These agreements are becoming more common outside of celebrity circles. They must be entered into freely, and with all assets and income openly declared. While they are not always binding, a well-drafted agreement, properly entered into, can, and often will, be upheld by a court in any proceedings. This is particularly the case if an agreement has been reviewed on a regular basis and where the needs of both parties can be adequately met by its terms.

It will also be necessary for the parties to ensure that their Pre or Post-Nuptial Agreements are cohesive with any other financial arrangements they have, such as Partnership Agreements.

It is important, therefore, that parties who hold assets which have been received from a non-matrimonial source, seek early legal advice from our specialist family law team to avoid unnecessary acrimony and outcomes that either party might view as unfair.