Should farming families use Pre nups or Post nups?

Tim Russ is a Partner at law firm, Clarke Willmott and a specialist in agricultural, private client and property disputes.

It is not romantic to ask a potential marriage partner to sign an agreement either before or after getting married determining how the assets will be split up after a divorce. Such "pre nups" or "post nups" (depending on which side of marriage they are signed) used to be the province of the rich and famous media stars and actors and used not to be enforceable. Given the values of farms and estates in my experience they are now becoming much more widely used in the farming community despite the lack of romantic appeal.

The courts have become much more supportive of pre and post nups and have opened up the way for the parties to self regulate on divorce and to try to predetermine the outcome on divorce and effectively to ring-fence assets. The two cases of Radmacher/Granatino and MacLeod are worth looking at to show current judicial attitudes. The first relates to pre-nuptial agreements and the latter to post-nuptial agreements. Although they both relate to super rich couples the approach that they show the judges taking is likely to be applicable in a farming case worth much less.

Radmacher/ Granatino was a marriage between a French national and a German national. They married in England and spent most of their married life here. They had two children and the marriage lasted for nine years. The wife was from a very wealthy family and had considerable assets before she married the husband. Prior to the marriage, they entered into a German pre-nuptial agreement which waived any claims for maintenance if they divorced.

Even though the wife had assets in excess of £100 million, the Court only ordered her to pay the husband a lump sum of £2.25 million to buy himself a property which was to be returned to her when the children grew up, and also to provide the husband with a maintenance fund which was limited to an amount which covered the children’s needs (the husband and wife had shared care of the children).

Of course, the amounts involved are much larger than in most farming cases. However, the husband received a small faction of the wife’s assets and nowhere near the equal division which is common in a marriage of this length. Also, significantly, whilst the husband received a very large housing fund from the wife, this was to be returned to her once the children had finished their education. It, therefore, opens up the possibility in other cases of limiting a spouse to a right to live in a property whilst the children are at home, but for that property to be returned to the original owner at a later date. This would mean a marked improvement on the current situation where a farm/estate may have to be split up or significant amounts borrowed from the Bank in order to provide the spouse with a separate property / an equal share of the assets.

The case of Macleod involved a foreign couple who had entered into a pre-nuptial agreement in the United States and, after several years of marriage and having moved to the Isle of Man, they entered into a post-nuptial agreement. Once again, despite this being a long marriage with five children and the agreement stipulating that the wife would receive significantly less than half of the assets, the English Court held the wife to the agreement.

Interestingly, this case made a distinction between pre-nuptial and post-nuptial agreements and found that the Court powers in respect of the post-nuptial agreement were limited to its power to vary the agreement in the event of a change of circumstance that would mean that it would be unjust to hold the wife to the agreement. As the parties already had five children at the time of the post-nuptial agreement there was no change of circumstances which would cause an injustice to the wife.

My advice is that the Courts will now take into account agreements that seek to regulate how a couple’s finances should be dealt with on divorce. Ideally, parties should enter into a pre-nuptial agreement before their marriage, and probably immediately thereafter enter into a post-nuptial agreement which, following MacLeod, and in the absence of a change of circumstances, will make it very difficult for the Court to vary the agreement on divorce.

In addition, even if the parties do not have a pre-nuptial agreement, there is nothing to stop them entering into a post-nuptial agreement once they are married. Where the farm or estate is still held by the parents who are concerned about passing the farm/estate to their son/daughter, provided the son or daughter’s spouse can be persuaded to agree to enter into a post-nuptial agreement, then the family can take advantage of the inheritance tax benefits of transferring the farm to their son/daughter without putting the family farm/estate under the same risk as it would if there was a divorce without such an agreement.

This is a specialist area of the law and parties seeking advice should consult a solicitor with expertise in family law and agriculture if at all possible before taking action