Asset Rich – Cash Poor
The set up for most farming families is one of being asset rich but cash poor. Family wealth is often tied up in land, machinery and stock with the parties having a relatively low income stream. Therefore the main problem farming couples often face when going through a divorce is how to realise the value in the capital assets, in order to achieve a fair financial settlement.
If the farm has been in one party’s family for generations the farming business is likely to involve other family members. There could be additional complications such as trusts, partnerships, taxation issues and the structure of the company itself.
Various methods are used by the court to try and release cash to the departing spouse without affecting the core farming business. It is important that all options are explored at the outset of divorce proceedings so as to minimise legal costs and emotional stress.
Options to consider:
1) Could any parts of the farm be sold? The farming business might own several farms of various sizes. Perhaps a smaller farm could be sold in order to realise cash for the departing spouse, without drastically affecting the core business.
2) Could a loan be taken out against the farm? There may be grants available exclusively to farming businesses with good rates for repayment. The Agricultural Mortgage Corporation (AMC) specialises in finance for farming businesses.
3) Would the departing spouse agree to their entitlement being paid to them in instalments? The farming business could arrange its finances so that funds can be accounted for and raised on whatever repayment basis has been agreed (ie quarterly or annually).
4) Can payment be deferred? In some cases the departing spouse may agree to take a charge over assets so that on a specified date or after certain trigger events the assets are sold and the charge is realised.
These are just some of the methods used by the courts, but in such cases early communication is key. A series of roundtable meetings with the parties and their respective lawyers, could allow matters to be dealt with collaboratively, so issues can be settled without the need for court intervention.
What is important is that separating parties who are involved in a farming business should seek expert legal advice from the outset, in order to get the best possible advice and explore all the options available.
Amanda Erskine is a solicitor in the Family department at Barker Gotelee Solicitors.