Farms and discretionary trusts

Farms often pass down through generations and it is not uncommon in rural circles for farmers to describe themselves as custodians of land, with responsibility for taking care of and protecting land for future generations but inheritance prospects can easily be damaged by divorce.

It is also not uncommon for adult children to live in farm properties and be part of farm partnerships or shareholders in limited companies set up to further farm businesses. On divorce assets that are directly held in the name of an adult child have to be valued and are usually considered to be a marital asset for division between the divorcing couple, often on a 50/50 basis. Exceptions may be made where an asset has been recently inherited but this is subject to the needs of the leaving spouse and any minor children being met. Children’s needs are paramount and a farm property owned by one party or jointly by the parties may be sold if it is the only way to house both parties and the children. Other family members may find themselves stepping in to avoid a sale.

Business interest such as company shares usually require expert valuation, taking into account profitability, minority/majority holdings and liquidity. The court must consider where power and control lies, the willingness of other shareholders to purchase shares, any shareholder agreements and the provisions of the articles of association. The farming family will be keen to ensure that a company remains in family ownership as the law shies away from guaranteeing that a company will not have to be sold in order to realise an asset for division between divorcing parties. Again this may involve family members stepping in.

Many farming families have trust arrangements going back years and the divorcing party’s entitlements have to be carefully assessed. Trusts work best as part of a long-term strategy to protect family wealth as it is passed down through generations. A discretionary trust set up when a child’s marriage was in contemplation is likely to withstand attack by the court on divorce. Nevertheless a judge might make an order that encourages family members to make trust assets available to avoid a divorcing family member defaulting on payment due under a matrimonial order.

Pre-nuptial agreements are an effective way of preserving wealth on divorce. At Barker Gotelee Solicitors our Family team specialise in these arrangements.

Nicola Furmston is a solicitor and head of the Family team at Barker Gotelee.

Family Solicitors in Ipswich – for more information on our range of legal services, please call the team on 01473 611211 or email [email protected]

A version of this article appeared on 13th August 2016 in County Life.