Farming families who want to preserve their business for future generations are increasingly seeing the importance of succession planning and we are seeing a growing number of enquiries about pre and post-nups.
The stark fact is that almost half of marriages now end in divorce.
The financial consequences of divorce can be uncertain and significant disputes can arise where a farm is concerned if it is not clear who owns what and how a fair outcome can be reached. So what can we do to minimise that risk and open up the benefits that come with a considered succession plan?
Pre and post-nups for farming families
Properly prepared pre and post-nuptial agreements now hold more weight than ever. If properly entered into, they shift the court’s starting point in a divorce from an equal division of assets between the spouses, to the terms of the agreement.
It would then be for the person who does not want to be held to the terms of the agreement they had signed to show why it would be unfair. The court will then depart from the terms only to the extent required to meet reasonable needs.
The court should not disregard the agreement if it was freely entered into and both parties were advised of the effects of signing it (in terms of whether it was beneficial or detrimental to them to do so) by independent specialist solicitors. The question for the court is then only whether at the time of the divorce whether the terms of the agreement meet the needs of the spouse and any children.
As long as an exit strategy is agreed for a separating spouse that does not involve breaking up the farm, but at the same time meets their needs and those of any children, it would be difficult to argue that it should not be followed.
The whole purpose of pre and post-nuptial agreements is to reduce the scope for arguments which would involve huge cost to the family, both emotional and financial.
Any such agreement should be backed up by a formal partnership agreement restricting who can own part of the farm business and Wills for partners, dictating what should happen to their share on death. It is also important to record clearly how the assets of the farm are owned and plan for issues including inheritance tax.
Having thought through these issues will ensure that you are not bounced into last minute decisions, which are inevitably more limited, when succession is forced upon you. It protects the farming family as far as possible from the stress and costs of a divorce of one member of the family.
These are just some of the many issues which need to be carefully considered when setting a clear plan for the long term future of a farm. There is no plan which suits every farm and it needs to take into account individual needs and wishes. Advice from a specialist solicitor is crucial.
For more information on how divorces can affect farms, please see our article here.
This article is part of a series on inherited wealth and the benefits of pre and post-nuptial agreements:
- Second Marriage & Adult Children – how to address financial concerns
- Parents, pre-nups and paying for house deposits
- How can I give my child money without their spouse having a claim?
- Inheritance & Money – what are the consequences of ‘mingling’ inherited assets?
- Tax Planning for Families – the benefits of pre and post-nuptial agreements
For more information you can watch our video: