Divorcing couples with agricultural business assets should avoid the courts, says Christine Rawsthorne

2 Jul 2012News

Few people would choose to unnecessarily take a divorce case through the courts, but for disputing couples with assets tied up in a farming business the advice is very clear: avoid the court arena like the plague.

Selling up

Family lawyers are often asked to advise on how best to deal with a family business within the context of divorce proceedings, and one of the options is for that business to be sold. However, where the business concerned is a farming partnership, a sale could be devastating, not only for the two parties involved, but for members of the family who may have a role in the business.

The nature of farming businesses means that they are often built up over many years and several generations of the family will be involved in some way. Elderly parents, brothers and sisters may all be living on the dwelling and naturally they will be concerned to protect their interests.

This can result in numerous sets of solicitors being involved, adding to the cost and timescale. These cases really need to be conducted with a great degree of sensitivity to the needs of everyone involved and a creative approach should be adopted to explore the different options available for resolving the matter.

The most significant case of this century concerning farmland is that of White v White (see box).

One argument often used in farming cases is that one of the parties has inherited the farmland. The person who has received the inheritance often feels that the inherited asset should be taken out of the equation and that the other party should not be allowed to make any claim against it.

In practice, although the courts can take into account the fact that all or part of the farm has been inherited by one of the parties, that does not necessarily mean that the court will keep it separate from the other assets being divided in the course of divorce proceedings.

Another concern for farming families faced with this situation is safeguarding the inheritance for their own children. A farming divorce that is not handled properly could result in there being very little left in terms of a viable business for the children to inherit.

Often the starting point for the division of assets can be on a 50/50 basis, with the court then considering a range of factors to decide whether or not that division would be fair. The court is entitled to take a broad-brush approach and is not necessarily expected to conduct a full investigation into matters that might affect the value of the business, such as the single farm payment, the seasonal nature of farming and how subsidies might be affected by the outcome of the financial case.

Specialists who have expertise in valuing farms should be appointed to attribute a realistic value to the business. A failure to obtain an accurate valuation could result in one party being awarded far more, or far less, than their fair share of the assets.

Farmers who have not yet married but intend to do so might want to think about entering into a pre-nuptial agreement setting out what will happen with the farming business in the event of a divorce. It is not possible to guarantee that the terms of a pre-nuptial agreement will be binding, although more and more of these agreements are being upheld.

Possible outcomes

So what are the possible outcomes for a farming business in the event of a divorce?

In any case where the court is asked to look at a business that generates income for the family concerned, the court will be reluctant to order that the business concerned should be sold. However, if a sale is to be avoided, then one party is going to have to give consideration to how they are going to raise sufficient funds to ‘buy out’ the other’s interest if there is to be a clean financial break.

This might involve one person having to secure a considerable loan against the farm and, in the current economic climate, finding a willing lender can prove extremely difficult. Even if a lender can be found, careful thought will need to be given to meeting the repayments and how that might affect the continuing operation of the business.

If a lender cannot be found, then consideration can be given to selling off part of the land or business to raise enough capital to buy out one person’s interest, but finding a willing buyer who can secure the borrowing to fund the purchase can be a challenge. Careful consideration would also need to be given to whether, for example, subsidies might be lost if part of the business was sold off.

If the person who is leaving the business does ?not feel that there is any pressing need for them to receive their full entitlement straight away, then a properly negotiated agreement could be reached in terms that they are paid in instalments over a number of years, perhaps with that person retaining an interest in the business until such time as the last instalment has been paid.

This option does not usually find too much favour with either party as it does not achieve an immediate clean break and one party may struggle to rehouse themselves elsewhere unless they receive a decent lump sum payment straight away. There are difficulties with all of these options, meaning that, unfortunately, sales are sometimes unavoidable.

Alternative remedies

The introduction of the Family Procedure Rules 2010 means there is now a far greater emphasis on divorcing couples using alternative methods of resolution rather than launching straight into court action.

These alternatives can be particularly useful in farming cases as they provide a forum in which the couple concerned can set their own agenda and hopefully reach an agreement that is workable not only for them, but also for the wider family.

A husband and wife who have been in the farming business for many years are likely to be in a better position than a judge to understand how any eventual outcome will affect the business. For this, and several other reasons, dealing with the matter via the courts should be seen as a last resort. Other options that are available include the following.

Collaborative law. Both parties instruct specially trained collaborative lawyers and the clients and their solicitors sign an agreement which states they will not threaten to issue court proceedings.

If either party does this, then both solicitors have to cease to act, which results in wasted costs and time for both parties. The clients set the timetable and the agenda and the matter is dealt with by way of roundtable meetings where both parties have their respective collaborative lawyers present.

The clients and their lawyers work as a team with a view to reaching a mutually acceptable agreement. This helps to avoid the acrimony that can be associated with court proceedings.

Mediation. In mediation, both clients meet with an independent person, known as a mediator. The mediator is completely impartial and cannot give either party any legal advice.

The aim is to help the clients have a frank and meaningful discussion with a view to an agreement being reached. Again, the clients can set the agenda and timetable and they can each retain solicitors outside of the mediation process who they can turn to for legal advice before and after sessions of mediation.

Negotiations through solicitors. Very often a case can simply be resolved by each party negotiating via their respective solicitors. Clients should consider instructing family solicitors who are members of family law group Resolution.

Members of this organisation adopt an amicable and constructive approach to dealing with all issues surrounding marital breakdown.

Ultimately, if an agreement cannot be reached, then one person may have to issue an application at court for financial matters to be determined by a judge. The court will fix a timetable and an agenda which might not necessarily suit everyone involved ?in the case.

The eventual decision might not necessarily find favour with either of the parties and the long-term consequences of the decision may not have been properly thought through.

By treating the court process as a last resort, clients can hopefully retain control and reach their own decisions, thereby avoiding the need to have a decision imposed upon them by a judge at this particularly difficult time.

White v White

Martin and Pamela White (see White v White [2000] UKHL 54) were married for 33 years, had three children, and ran a successful dairy farming business in partnership. They both came from farming backgrounds and built up their farming business throughout the course of the marriage, with some financial assistance from Mr White’s father.

By the time the case came before the court their net assets were worth approximately £4.6m. At the first hearing, Pamela White was awarded £800,000. The judge said it was unwise and unjustifiable to break up the existing established farming enterprise. On appeal her award was increased to £1.5m. It was accepted that the farm would probably have to be sold to achieve this result.

Christine Rawsthorne is an associate solicitor at JCP Solicitors