Divorce is always stressful, and especially so if the settlement involves a family business. A family business scenario that is very relevant in Scotland, particularly across Tayside, is divorce or separation involving farms.
One difficulty with divorces involving farms concerns gifted or inherited land which has been passed down through generations. Under Scots law any asset that is gifted or inherited from a third party is not matrimonial property, and will not be part of the matrimonial pot to be divided upon divorce.
The rationale is to distinguish it from the property acquired by a couple through their efforts during the marriage. Often parents assume their children as partners in the farm and gift them part of the land. To protect the asset it would have to be made clear that it was an outright gift.
The difficulties arise because there are a variety of ways in which gifted or inherited assets can be converted into matrimonial property during the marriage. This could include a restructuring of the farming business, quite often for tax planning reasons. One example is a spouse may be made a partner in the business or gifted a share of the land.
Although it’s a truism, prevention is better than cure. Long before any business restructuring or marital disharmony occurs, a Prenuptial Agreement or indeed a Post Nuptial Agreement can avoid uncertainty.
This allows the ring-fencing of certain assets, usually the interest in the farming business, the land and any future gifted or inherited land. Quite often, the extended family will request that a couple enter into an Agreement to give them reassurance that the farm will not be at risk in the event of a future divorce.
In Scotland, a Prenuptial Agreement is considered binding and enforceable if fair and reasonable at the time it was signed. It is a worthwhile investment when compared with the costs involved in a complicated divorce that could jeopardise the family farm.
And even if the time has passed for a Prenuptial Agreement, it is essential to seek legal advice on the possible matrimonial consequences of any restructuring of a farming business. Divorce may seem unlikely at the time, but the possibility should never be ignored.
Jennifer Gallagher is a Partner in RSB Lindsays Family Law team in Dundee
Lindsays LLP
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