A family lawyer’s bread and butter is relationship breakdowns and so it is always a welcome break to spend some time with giddy brides and grooms planning a wedding. An increasingly common class of marrying couples seeking pre-nuptial agreements are adult children of farming families. In recent years there has been a notable uptick of farming families proactively planning generational wealth protection and distribution.

Planning can start earlier than a pre-nuptial agreement. It is now not uncommon to see partnership agreements for farming businesses containing a clause insisting that children of the family, particularly if they work in the family business, enter into a pre-nuptial agreement prior to marriage. This is not of course particular just to farming businesses, but it is probable that the breaking up of a farming business upon divorce can have more serious consequences than other types of businesses.

What is unique about a farm?

Farms are uniquely by their nature all inclusive in terms of homestead, capital assets (and liabilities) and income. Life past, present and future for what can also include wider family members is fully represented in the structure of the business. Deconstructing that business to provide a share to a divorcing spouse risks destabilising life not just for the other spouse but also other family members. The matrimonial courts ordinarily have a broad discretion to redistribute marital assets to meet each spouse’s reasonable needs. Farming divorces can be tricky because the usual principle of a starting point of equality is weighted against what are likely to be inherited generational assets and a need to try and maintain the business, and its associated home(s) and income(s). The outcome of this can sometimes have unfortunate but necessarily harsh consequences for the spouse who is not intending to remain in the business. Conversely, there is also not a guarantee that the farm will remain unaffected by divorce.

To ensure preservation of a farm in the event of divorce, a pre-nup is unavoidable. A pre-nup is often structured to ring-fence from a divorce the majority of what constitutes business assets (property, land, machinery, livestock, bloodstock, capital accounts etc). A narrative contained within the pre-nup setting out a brief history of the business, its chronology through the generations and context for the meaning and purpose of the pre-nup is hugely helpful. An additional narrative to clarify the betrothed’s present and future intentions within the business is also valuable. This all adds to an ‘eyes wide open’ approach to entering into the pre-nup and protects against a later attempt to attack its credentials.

The reasonable needs of the spouse-to-be

To support the validity of the pre-nup, thought must be given to the reasonable needs of the ‘financially disadvantaged’ spouse-to-be. These needs must be properly identified and thought given to how they will be met. The obvious key need is provision of housing. It might be that a property within a portfolio can be earmarked as a suitable home in the event of a divorce. In the alternative, thought should be given to how a lump sum can be provided by the business to meet housing need. This does provide an opportunity for creativity. It could be a sum that is paid outright; it could be a lifetime loan that is repaid to the business in the event of a future triggering event such as remarriage or death. If it is foreseen that the non-farming spouse is to be brought into the business, reference should be made to what happens to their share upon divorce and how they might be bought out. Review clauses can be helpful to tweak the agreement as life moves on, children are born and the business expands or contracts.

Future wealth planning and preservation no longer carries the stigma that it once did. Younger generations, more used to higher divorce rates, are less perturbed by a document that plans for the possibility of separation. Conversations are becoming easier and pre-nups more common. Planning and early preparation are key, from both a business and matrimonial perspective. For all concerned, a price cannot be put on peace of mind and long term preservation of generational wealth.