There is a correct assumption that a divorce between spouses where either one or both own a business can get very complicated. Nowhere is this assumption truer than when it comes to a farming divorce. Farming is unique in that it is not just a business but a way of life, and the damage caused by a divorce, unless handled very carefully, can be irreparable.
Until White v White (where both parties happened to be in a farming partnership – although this was incidental to the outcome), financial provision tended to be arranged on the basis of reasonable need. This meant that in farming cases it was considerably easier to protect inherited and pre-marriage assets (such as the farm) from being sold to fund a divorce settlement. This changed after White v White which established the principle of fairness. The judge ruled that the ‘yardstick of equality’ should be applied so that the contribution of both parties to the marriage, and its length, should be taken into account and that the financially weaker party should not suffer discrimination.
Implications of White v White
There is a common misconception among farmers and landowners that a farming operation is ring-fenced and thus excluded from any divorce settlement. This is not the case: the principle of equality established in White v White (and confirmed in subsequent, high profile rulings) means that all assets, including the farm, must be ‘taken into account when determining the requirements of fairness’ (Lord Nicholls, Miller/Macfarlane). Nonetheless, a Judge does have the discretion to depart from this basic principle if it becomes clear that an equal division of assets is not fair, particularly if such an action is likely to damage the business irrevocably – and, for this reason, it is generally acknowledged that farming cases are particularly difficult to resolve and deserve special attention. Thus there is considerable danger that a lawyer, lacking understanding of how a farming business operates, may get it very wrong when advising one of the parties to a farming divorce.
Farming divorce needs a creative approach
A divorce settlement which leaves the farming business largely intact and succeeds in providing for both parties requires creative thinking. A court will expect the parties’ lawyers to suggest an innovative way of arriving at an equitable outcome but this is difficult to achieve unless those lawyers understand that, in farming, life and business are inseparable. Most farmers consider themselves to be temporary custodians of the land, managing the farm before handing it on to the next generation and tend to be asset-rich but cash-poor. Finding a mutually acceptable resolution requires a thorough investigation of both liquid and illiquid assets, any family trusts and settlements, the business structure and the lifestyle of both parties.
How to achieve a workable farming divorce
There are a number of questions lawyers need to consider. What is the value and acreage of the land involved? Does it have development potential or planning consents? Has additional land been bought since the marriage? Who is involved in the farming partnership? Are the land and buildings held in a family trust? What other tax planning arrangements are in place? Are there any farm tenancies? And farm cottages? Are there any informal arrangements with other family members, such as the construction of a house on another part of the farm? It is rare that all questions will be answered without the input from other professional advisers, in particular the farm’s accountant. One of the major problems in negotiating a fair settlement and achieving a clean break is the problem of liquidity. A valuation alone is a blunt tool whereas an accountant can explore various ways of raising capital whilst leaving the business, the main income generating vehicle, in good health. Other advisers, including agricultural consultants, can also help to identify non-core assets which can be sold without detriment or find other ways of maximising income from the existing business. It is only by exploring the problem from all angles that a workable solution will be found.
Keeping the golden goose alive
The courts recognise that farming divorces need particularly careful consideration and they expect innovative input from the lawyers advising the divorcing parties. Lawyers with a track record of doing so understand the sector and the importance of working with other specialists. We can genuinely attest that our experience in advising parties in a farming divorce is second to none. The analogy of the goose that laid the golden egg is commonly evoked when deciding how to achieve an equitable outcome in a divorce settlement without strangling the source of income. As specialist divorce lawyers, who have acted for farmers, landowners and their families for generations, this analogy is never far from our minds.