Ep. 22 - Dealing with farms on divorce

Tim: In this episode, we're going to look at finances on divorce with a specific focus on cases that involve farms. The legal framework is the same for all cases, looking at the principles of needs and sharing and applying the Section 25 factors.

We've outlined all of this in episodes five and six of the podcast. But as you'll discover, farming cases can have their own additional considerations.

Jen: Today we're joined by Ania Tarasiewicz, a Principal Associate in our Cambridge team. Ania's a family law solicitor dealing with complex cases involving businesses, particularly in the agricultural and property sectors.

Ania is a fluent Polish speaker and is actively involved in the Anglo-Polish community in the UK and in Poland. Welcome Ania.

Ania: Hi Jen, hi Tim.

Tim: So before we get started, we thought it'd be helpful just to explain that when we talk about farms, we mean the whole farming enterprise. We're not just talking about the land, but we're also talking about the business structure and potentially partnerships or limited companies as well.

Jen: We're also talking about farms in a very general sense. There will undoubtedly be differences between a smaller farm and a much more commercial farming business, both in terms of the scale, size of the operation, the diversity of the farming activities and how they're managed.

However, as we'll discuss with Ania, from a family law perspective, there are many shared issues when it comes to farmers who might be going through a divorce and hopefully today's podcast will give you a bit of insight into all of that.

Tim: So, with all that in mind, let's look at how cases involving farms might be dealt with on divorce. And let's start with a more general question, Ania, which is, can you tell us a bit about how farms might come up in a divorce case?

Ania: Thanks, Tim. So farming is unlike most other business activities, it's also very much a lifestyle and a culture. Although farms are businesses, they are markedly different from most other family businesses. They are usually capital intensive and very much subject to a variety of market pressures, global and natural actors for their success.

So in terms of how farms come up in a divorce case, usually we get contacted by one of the spouses in the divorce, or sometimes even by their parents, if they remain involved in the farming business, or sometimes one of their professional advisors. The farm could be a joint enterprise where both spouses are working in the farm together or indeed only one of the spouses may be working on the farm.

There's also different scales of farming practices. So you could be looking at a 100 to 300 acre farm that's solely involved in farming, be that mixed farming, so cattle, sheep and arable, or just arable farming. Or maybe bigger farming enterprises with a thousand acres or more. It could also be farming business that has diversified. For example, they might have converted their barns into, say, business parks or even wedding venues.

Jen: I think what you've picked up on there at the outset, Ania, is the fact that farms are very much more than just the day-to-day activities there. They've got an integral part in the lives of that farming family. And do you think that that sort of then means that when someone comes to you about a farming divorce date, they've already got a clear set of priorities in how they want to deal with matters on a divorce?

Ania: Very much so. And it's important also to think about who else could be involved, such as the wider family structure, as I mentioned already. Parents and particularly the children. So, some of the children or all of the children may also be working as already as part of the family business or they will want to start working.

So very much there are certain priorities from the spouse who owns the farming business of really wanting to keep it for the next generation. I think they very much see themselves as custodians of the, of the land, of the business with a great responsibility to their family, also some to the wider community as well of passing on the business.

And also the non-farming spouse, they also feel a sense of responsibility about the business and particularly their children acquiring the business. But also what they might be concerned about is where are they going to live, and how are they going to survive outside of the structure of this farming business.

Tim: And so if we're thinking about the courts and I suppose the powers the court have, it's probably safe to assume that they don't get any extra powers just because it's a farming case, but I think they're probably also principles that come up more often and they're more common in farming cases. Can you just talk to us a bit about that?

Ania: Absolutely. So, although there are no special rules of law for farming cases, certain features do often occur, such as there are ownership complications of the assets and of the land. Is it owned by an individual or are the assets owned by a company structure or even a partnership? And who's involved in the business? Who's also a co-owner of the either company or who are the other partners? There may also be trusts involved as well. And then there's consideration of who are the beneficiaries, who are the trustees.

Another aspect is valuations. So valuing the assets that are formed part of the business and the fabric of the family. Another big feature is inheritance. Very often farming businesses have been inherited from previous generations. They could be multi-generational farms that date back a hundred, thousand of years or they might be more recent but still have been passed down from great-grandfather, grandfather to now the present owner.

So there are a lot of considerations to take into account of non-marital arguments in a divorce case. One big aspect of the case is also liquidity. So the cash available to actually pay out, buy out a spouse as part of or how do you fund the divorce settlement. As I said, farming businesses often have a lot of capital, they're capital rich, but there's not a lot of liquid cash available. A lot of the time farms do rely on burrowing. So land is already charged, there's already a significant amount of burrowing already within the business. So how is money going to be extracted from the business to meet the divorce settlement but keep the business going and hopefully not sell assets.

Tim: I think there's a lot of points that we can probably discuss there, but I certainly, my experience of farming cases fits with the description of actually how the farm has grown or has come to be held by the person that it's held, is often not necessarily planned in the same way that it would be with other businesses because it depends on when land becomes available, where that land is, who's farming at that point, whether it's grandparents or there's great grandparents and so for a lot of families having to look into all of the legal documents, who owns what, how it’s owned, as you say either it’s owned in a partnership, in a trust, or whether it’s owned outright by someone.

Often they haven’t actually looked at that, because from a day to day point of view of running the farm it doesn’t matter. And it's always been that way. And they've always had access to that field. But when you start to look into the detail, it's interesting that it's often the first time that the farmer or the farming side of the family has actually done that exercise. 

Ania: Absolutely, Tim. And this is where the farmers wider team is invaluable in helping with collating documents, looking at the assets, getting that farming plan, the crop plan to us and having a look. 

Tim: And I think it can fit into a point around the importance of clear and straightforward financial disclosure because it may be that the spouse of the farmer was always under the impression that “this part of the farm was owned by X”. 

And actually, that may not be correct when everyone looks into the details. So, and that doesn't mean that anyone was being dishonest or anyone was trying to pull the wool over anyone’s eyes. It’s just that it never really got looked into and the assumptions were made.

And so I suppose there's a point around the importance of the initial disclosure. And trying to make that as comprehensive and as straightforward as possible. And I think one of the tips that I find that's helpful for that is to ensure that it makes sense to someone that knows nothing about the farm. Because you've got to remember that the spouse is taking advice from lawyers, from accountants, from tax experts who may not know anything about that farm, they may not know a huge amount about farming generally, so it helps everybody in the long run to start off with a very clear set of financial disclosure. 

Jen: Absolutely, and I find that cases involving farms, you're not necessarily just dealing with accounts and facts and figures. Sometimes you're actually sharing maps, sharing photographs and kind of really trying to bring to life how the farming business is operating on a practical basis so that that can then give greater clarity around the figures and the numbers that are presented on the page. 

And that neatly brings me on to our next question in terms of potentially having to get experts and third parties involved. In farming cases, I think we've touched there a little bit, but that you might work with the advisors in actually preparing your financial disclosure. But I suspect we might also be looking to get single joint experts, someone independent in for input as well?

Ania: Absolutely. I think from the starting off with the financial disclosure point, as Tim said, it's very important if you're acting for the business owner, the farmer, of getting, me being very clear as to what the assets are, who owns them, possibly even giving an idea of value. Very often, if you just look at the farm accounts, land might be quite an old valuation of the land, so is it up to date?

In order to try to agree with the spouse of value if that's possible because experts can be very expensive. So that might be taking advice from your land agent now as to what is the current market value of the land and maybe inputting that as part of your financial disclosure to try and get that figure agreed with the spouse. But it might be that a single joint expert is appropriate to be instructed by both spouses who is an independent person. Ideally, someone local and knows about farms and the specific nature of a farming business. And then it's a question of what assets to value. 

Usually it's the land at that point. Particularly on a farm in case you need to think about are there any tenancies attached to the land and what effects the tenancies have on the value of the land? There are also, any grants that are available and therefore how do they feature into the valuation of the farming business? There could be a business valuer involved, so actually valuing the business as a whole.

As well as a tax advisor in advising what the tax implications could be on liquidity or they would advise on liquidity, foreseeable future income, extraction and also now given the changes in the inheritance tax, possibly what future implications could be in relation to meeting future inheritance tax. 

Tim: And so thinking about all of those different points with the experts and the preparation of the financial disclosure, what sort of impact might that have on timescales for these types of cases and legal costs?

Ania: So the impact could be that it could take quite a long time. There's a lot of disclosure to get through and to present which might take a long time. A few months, but that's where working with your client's team is so important if you're acting for the farmer, so their land agent, their business advisor, their accountant in that preparation in order to reduce those time scales. And hopefully decrease possibly some of the costs because they will have that knowledge first hand. 

Expert input can sometimes slow things down, especially when you have a few different experts. One expert that keeps cropping up, at least on my cases, is also plant and machinery valuations. So it could be potentially, you could have three or even four experts instructed on one case.

So that is definitely something to think about in terms of costs and proportionality in terms of trying to agree values of assets. And if not, what are the costs of the experts involved? But very often I find that clients want to do things quickly. They are running a business. If you're acting for the farmer, they are the life cycle of a farming business, can be very intense, particularly during harvest.

So, trying to match that timescale of the court process, matching the harvest, for example, harvest timescale is also something definitely to think about. And one of those options that could help in the process is looking at non-court dispute resolution options where you can be more flexible in terms of the timing of when experts are appointed, when there are meetings with advisors, with counsel and when you have hearings.

Tim: I think that's a very good point and lead us into some discussion about the non-court dispute resolution options.

As we've said earlier, if you're acting for the person who is in possession of all the information, then it's worth thinking about this early and being proactive rather than reactive. Setting out a timetable that takes into account busy periods on the farm, will be received far more sympathetically than having deadlines set, missing them, and then blaming the busy period on the farm.

And I think that's where options like arbitration, thinking about private FDRs, and potentially mediation come into their own. And thankfully, we've done episodes on all of those different processes, which you can listen to.

Jen: Absolutely. And I think remembering back to one of those episodes, we were actually talking particularly in the mediation context of the opportunity of having potentially third parties come into mediation sessions if they're going to be able to share useful information in the discussions to help move things along.

Tim: I think the other point to mention just on mediation is that I think, Ania, at the beginning you talked about just thinking about the decision makers and the people in the room. I've had a mediation where we were able to include the other generations that were involved in the decision, and actually when you're talking about a farm, those people are often pivotal because of the way the farm's owned, the future of the farm, how it's going to work moving forward.

And so having flexible process like mediation where you can have sessions with the couple themselves, you can then have sessions potentially with any adult children, or grandparents, allows you to make sure that the people that need to be involved in decisions and need to buy into decisions can be in the room. 

Ania: And also you could bring in the business advisor, the farm business advisor, the land agent into the non-court dispute resolution option. The non-farming spouse could also bring an IFA, a financial neutral, is what they will be concerned is meeting their housing needs, meeting their income needs. And how does that happen where very often cash is tight? Is there a relocation of assets?

The non-farming spouse, are there any builds, houses that they could move into or will they need a capital fund in order to buy their own house and also thinking about how the, if the assets are going to be passed on to the next generation, potentially even thinking or maybe bringing in if appropriate, that next generation in or at least considering if there's going to be a change in assets, how that fits in for passing it on to the next generation and succession planning. 

Jen: Well, I think what our discussion today, Ania, has really highlighted is that when you have got a divorce that involves a farm, there are so many considerations throughout the whole process, whether that's at the start in terms of the disclosure process and the information sharing. 

During the process in the negotiations and who might be involved in those negotiations. Is there a way of bringing that all together, Ania? You know, what would you say to someone who was thinking about a divorce where there is a farm involved?

Ania: It's so important for matters to be dealt with properly as there is a lot at stake and also getting a team that really understands farming, the pressures on farmers, the pressures on the non-farming spouse, the pressures on the wider family and the community and the context that they are operating in, which is often very difficult, very stressful.

And divorce only, unfortunately, could add to that stress. So it's really about getting it right, thinking about all these things right at the beginning. And it might involve more work, more thinking and planning about building your team, doing the financial disclosure process, but that really pays off as you go through the process.

And then really thinking about the process that works for the family, for the farming business, In light of the unique pressures that farmers and farming families face. And also thinking about the next generation, working with the clients, experts, working with experts that also really know about farms in the local area, so appropriate land valuers, business valuers, tax advisors.

And thinking about the future as well with why an eye onto the future balancing the need of financial disclosure and understanding what the assets are worth in order to have a financial settlement that a court would deem fair, balancing that with the cost and time proportionality and the stresses of the process.

Tim: Brilliant. Thank you very much for joining us today, Ania. And as always, if anyone has any questions or comments or suggestions for future episodes, then please contact us by the usual channels.