Tide is turning in favour of ‘pre-nup’ deals

IT is clear that farmers of both sexes and all ages are now in favour of pre-nuptial agreements being recognised. The Irish Creamery Milk Suppliers Association and the Irish Farmers’ Association have called for ‘ pre-nups’ to be legally binding and recognised by the Irish courts – although the Catholic Church remain in opposition, maintaining the view that marriage is for life.

Justice Minister Frances Fitzgerald has begun investigating the potential impact of introducing laws recognising pre-nups. It would seem that the tide is turning.

With divorce rates increasing, a study carried out by Macra na Feirme on ‘Land Mobility and Succession in Ireland’ identified that keeping the family farm within the family is a concern for those handing on the farm to the next generation.

A pre-nuptial agreement is a contract entered into by a couple before they get married. They make provision for financial and property matters in the event of the breakdown of the marriage. They can include issues such as lump sum payments, pensions, maintenance and custody for children.

A pre-nuptial agreement can give both parties peace of mind and can reduce conflict later. The difficulty is that Irish courts are not bound to enforce them.

However, legal opinion sees no reason why courts should not take pre-nuptial agreements into account when making provision for spouses and children.

It is essential to note if you are considering entering into a pre-nuptial agreement that both parties receive independent legal advice.

Also, the court would also have to be satisfied that each party had disclosed all of their assets before the agreement was reached.

The Report of the Study Group on Pre-Nuptial Agreements (2007) recommended that legal provision should be made to require the courts to take regard of pre-nuptial agreements when making orders in separation and divorce proceedings.

While this legal provision has not yet been made, many judges are already taking pre-nuptial agreements into account, where they exist. It is likely that at some future time there will be legislation introduced to give effect to the recommendations of the study group.

Many legal professionals view that pre-nuptial agreements are most likely to be given effect by the courts in the case of a separation after a relatively short marriage or where the circumstances have not changed greatly since the marriage began.

You should also bear in mind that there is something similar to a pre-nuptial agreement for qualified co-habitees (if you live with someone for a period of two years if you have a child together, or a period of five years if you do not).

This type of agreement is specifically provided for under Irish law at present, and they are enforceable.

The general advice is that you should enter the pre-nuptial agreement well in advance before the wedding — ie, months ahead.

Initial enquiries indicate that such agreements can be drawn up for less than €1,500.

This article is intended as a general guide only. You should seek professional advice in relation to individual circumstances. JACK and Aoife are engaged to be married next autumn. Jack (35) has just taken over the family 100-acre dairy farm and farm house from his parents.

Aoife (32) is a primary school teacher — she has just been made principal in the local school. They plan to live in the farmhouse as Jack’s parents have bought a new house away from the farm. The land is all in one block with very little road frontage. Aoife has an apartment in the local town, which she plans to let out.

They have decided to put a pre-nuptial agreement in place before their wedding. This example only considers the division of assets; the agreement would also cover other issues such as maintenance, custody, etc.

Jack is worth €1.5m and Aoife €100,000 when loans are deducted from their individual assets; this is called their Net Worth (see Table 1 and Table 2).

If, for example, Jack and Aoife have two children, experience marital difficulties after say 15 years of marriage and decide to separate/divorce, we look at how a prenuptial agreement might be of benefit in their case. In a family matter like this, both sides usually engage legal representation — ie, solicitor, barrister and agricultural consultant/valuer.

Negotiations between the parties are conducted, resulting in an agreement or not. If the parties cannot agree, the case will be heard in court and the presiding judge will make an order which will include a division of Net Worth.

Let’s assume the judge decided a 60:40 spilt of Net Worth between Jack and Aoife.

For simplicity, I assumed Jack and Aoife have the same assets after 15 years of marriage but they have paid off all their loans. Their combined Net Worth has now increased from €1.6m to €2.03m (see Table 3). A 60:40 split means Jack gets €1.218m and Aoife gets €812,000. Aoife’s original assets (apartment, etc) are valued at €255,000; therefore the farm has to come up with €557,000.

In this example, Jack would either have to borrow the money or sell around 47acres of land, or come up with some combination of both. Any option would make the farm business unviable, thereby increasing the risk of the entire farm being sold — massively increasing the level of tension in the family at this already difficult time.

The farm business can support a viable level of farm debt in the region of €275,000; therefore the pre-nuptial agreement could include a plan to sell Aoife’s apartment (€200,000) and Jack borrows the €275,000 — the combined sum of €530,000 allows Aoife to purchase a detached house (€325,000) suitable for her and their two children as well as have a sum in the bank (€205,000) for emergencies.

This solution protects Jack’s 100-acre dairy farm and also provides proper provision for Aoife and their two children.

Yes, Aoife received a lower level of Net Worth but surely this has to be a better solution than an all-out war resulting in high legal fees, the loss of a viable family dairy farm and bitterness between two families.

Pre-nuptial agreements would be of benefit to all married and co-habiting farmers in Ireland. They should be updated on a regular basis, at least every five years or when there is a major change in Net Worth of the farm business or income-earning capacity of the spouses/partners.

Every case is different, so there is no ‘one template fits all’ solution, and today it may sound unromantic but in time it could be the cornerstone of a relationship.

MIKE BRADY Mike Brady is an agricultural consultant and managing director at Brady Group. Email: mike@bradygroup.ie