This is particularly true in agricultural enterprises, where the complexities of farm ownership and structure can further complicate things. This is because a farm, its land, properties and sometimes even equipment may be passed down through a family for generations – and the farm might also be managed and owned by multiple family members.
Many people are not aware of the legal consequences of being married in the event of a relationship breakdown, when all assets will be considered and potentially divided between the two individuals.
There are various measures you can put in place to protect your business from the fallout of a relationship breakdown, and here we give you an idea of the essentials you need to consider.
Put an agreement in place
As individuals within a couple, the simplest way to help protect your business interests is to create a legal agreement.
If you are unmarried, the division of your assets is usually based on property and trust rules, so think carefully about how you organise ownership of your assets, your respective financial contributions and before you join a partner to your business. You can enter into a cohabitation agreement to set out how you will organise your finances during the relationship, or in the event of a relationship breakdown.
If you are married, or are thinking of getting married you should enter into a nuptial agreement (pre-nuptial before marriage, or post-nuptial after marriage). Bear in mind that a cohabitation agreement becomes invalid once you are married, so it’s important to replace it with a new agreement.
Get the right advice
These agreements aren’t without risk, however. If the court feels one party didn’t receive appropriate legal advice or the agreement is unfair, it may not be upheld So it’s in everyone’s benefit to make sure both partners receive reliable, independent legal advice and understand the implications of failing to provide full and frank financial disclosures.
Consider who else might be involved in the future
Relationship agreements are not very romantic, but it is not all about the end of the relationship; it is about agreeing arrangements for your financial affairs during the marriage. It may be sensible for your articles or partnership agreement to incorporate an obligation on any new partners/shareholders joining the business to have a nuptial agreement in place, to help protect the business from being broken up. Setting this obligation will also take away some of the strain of what can sometimes be an uncomfortable discussion.
Protecting your business interests
Each case is unique and must be treated that way. Whether or not there is a nuptial agreement in place it is important to get legal advice as soon as possible in the event of a relationship breakdown. So, if you are dealing with a separation, it’s important your lawyer has a clear understanding of how your farm is run, the scope of its assets and the structure of its ownership. It is also vital that both parties receive accurate legal advice. Starting off on the right foot saves time and money, and ensures you both approach negotiations realistically.
Where possible, it’s best to consider settling matters through mediation or other forms of alternative dispute resolution (ADR) rather than engaging in litigation. It can be time consuming and expensive, and the cost could even exceed the value of the underlying assets.
In amicable cases, where you are simply looking to separate your business, you should begin by speaking to your accountant to check there is the financial ability to break away some of the business or borrow against it. Any agreement you do reach, should be clearly documented in a consent order to protect you both in the future and to prevent further claims against your assets and business.
Some complexities to bear in mind
- Was the farm handed down in stages, or acquired by the farmer prior to marriage? In case of the latter, it may then be a pre-acquired matrimonial asset and so potentially wouldn’t automatically form part of the matrimonial estate.
- What contribution has a partner or spouse made either to the business or the marriage? For example, by managing a household or raising children. Consider a long-term marriage with children, where the first party is a company director in a successful business and the second party is a minority shareholder with a fairly inconsequential business contribution. If the business has grown during the marriage, the starting point is that the second party would receive a minimum of 50% of the net worth of that growth. This is because the business worth has been generated during the course of the marriage, and it wasn’t a pre-acquired or inherited business. It actually has nothing to do with their role as a minority shareholder. In these circumstances, the length of the marriage, and the needs of the parties and the children would overcome any other argument.
Each relationship and business partnership has its own considerations and will be resolved differently, which is where tailored, effective and early legal advice is key.
If you’re looking to make plans to protect your business for the long term, or if you’re concerned your business may already be at risk, please get in touch with Matthew Kellow.
