The 163rd Great Yorkshire Show has rolled into Harrogate – the location of our new Walker Foster office – bringing together thousands of farmers from across the country.

And so with one of the UK’s largest agricultural events on our doorstep, there really is no better time to look at succession planning within farming families and having all your ‘cows in order’ for future generations.

Almost half of all UK marriages end in divorce (42%) according to official statistics, and farming families are just as likely to be affected as any others.

The difference is, farms often have complex ownerships and may have been passed down through generations, so dividing up assets during a divorce can be extremely challenging.

In the worst cases, the split can result in the end of the farming business and the eventual sale of the land to meet costs.

So what is the first consideration?

The farmhouse

During a divorce, the largest and most valuable asset to be decided upon will be the matrimonial home – AKA the farmhouse.

We find that often this has been passed down through generations of farming families, however there has been a lot of debate in recent years as to whether inherited assets brought into a marriage should be considered during the divorce.

The ‘matrimonial pot’ is made up of assets that are acquired during a marriage or civil partnership to then be divided equally, but inherited assets are treated differently by a court.

That said, the matrimonial house is a special category, and it’s difficult to argue that inherited farms should not be regarded as a matrimonial asset when the couple have lived in, and potentially brought up a family, in that farmhouse.

Is the farm run as a partnership?

Farms are increasingly valuable assets and are rarely operated alone.

Often farming businesses are operated within a family partnership, with mothers, fathers, sons, daughters, husbands and wives all interlinked within a ‘partnership arrangement.’

However, if there is no such document in place, the fate of the farm will be governed by statute.

The UK Agricultural Land Market Survey revealed the average value of an acre was £7,000 in the first quarter of 2021. The UK has 39.8 million acres – so that’s £278 billion tied up in land.

Post-Brexit, it’s predicted that demand from new entrants will further increase land values, predicted to be up 3% in 2021 on the first quarter.

These increases in land and property values means that, in many cases, farmers will have little option but to sell parcels of land or borrow money in order to finance a divorce settlement.

What about pre-nuptial and post-nuptial agreements?

Given there is so much at stake, a lot of attention within farming families should be, and usually is, paid towards pre and post-nuptial agreements to decide on a concrete succession plan.

This agreement between husband and wife sets out how any future divorce financial settlement will be dealt with.

Although these agreements are not legally binding, courts in England and Wales have been giving them more weight in recent years following the landmark Supreme Court judgement in the case of Radmacher v Granatino in 2010.

The court took the couple’s pre-nuptial agreement into account when determining the financial settlement upon their divorce, and also handed out guidance in terms of how these agreements should be entered.

Both sides should enter the agreement “freely and willingly” and should both obtain independent legal advice before it is finalised.

The court also laid down the pre-requisite that the agreement should be reached in “good time” – not the night before the wedding – and by observing these formalities, they will significantly increase their chances of the agreement being upheld by the court should they divorce.

A pre/post-nuptial agreement is therefore now considered a good way to protect yourself when planning the passing down of assets to the next generation, and to avoid them being lost from a family due to a future divorce settlement.

Although it is not exactly considered ‘romantic,’ these agreements can be an effective way of protecting the family farm for the next generation.

It’s also a little-known fact that spouses who have lived together before committing to marriage will have those years added to the length of the marriage.

This could have a huge difference in terms of what is a fair settlement.

Repurposing the farm

The court will be concerned about meeting the financial needs of both parties going forward after the breakdown of the marriage, whether that means the farm can remain in operation or needs to be sold.

Although it is unusual for a court to order the entire farm be sold, it is more likely that capital will be raised to meet housing needs of either party by selling off part of the farm or borrowing against the property.

That being said, if the farm is not a viable business, the court may order it be sold and the capital be shared among both sides of the divorce.

Getting creative

Inventive solutions can sometimes be reached between spouses whilst allowing the farm to remain viable.

One example of this may be to transfer ownership of some of the land to the ‘non-farming’ spouse, who then agrees to let the land back to the other party remaining on the farm.

Another possibility would be to develop farm out-buildings or some other diversification to create a fair financial outcome for both parties.

Finding a solution

With so much at stake, farming families are becoming increasingly savvy when it comes to succession planning.

That being said, we at Walker Foster are always here to minimise conflict and offer legal advice on divorce, inheritance planning and probate, land purchasing and everything around dividing assets within farming families.

We deal with all types of commercial and agricultural property-related matters and can offer expert advice and guidance to ensure these complex transactions are as clear and straightforward as possible.

To find out more about the services we provide, give your local branch a call – contact details are available via our website – or fill out an online form and we will put you in touch with someone who can help.