Protect assets in case of divorce

In matrimonial litigation, there are curious cases known as “the farming cases”. Curious to the matrimonial lawyer because, with careful planning, they might not have happened at all. Here is a recent cautionary case. A husband worked on the family farm since leaving school. He was his sole trading father’s employee. Opportunities arose for the father to sell certain farming land. A business review followed. The father retired and conveyed the farming lands to the son “for love, favour and affection”.

A partnership was created between the husband and his mother. The father still managed the business. Nothing had ostensibly changed. The father then took ill and running the business was taken on by his daughter-in-law. She had had limited involvement with farm. She had raised the family and kept home.

The husband’s mother retired and the husband and wife took over. The wife had no idea she had been assumed as a partner. No one had asked her. There was no partnership agreement but she appeared in the accounts.

The court was satisfied that she was an equal partner, entitled to an equal share of what was in the capital accounts with the exception of a loan the father had made to the farming business. He had instructed the accountants to gift this to his son and it was paid into the son’s capital account.

As for the farming lands, the court held that she was not entitled to any of that – the father had passed it quite clearly to the son as an individual.

The wife’s claim was for a payment of more than £1 million. She achieved just short of £175,000. Unsatisfied, she appealed this decision but was unsuccessful. The cost of the litigation would have been eye-watering.

The wife’s expectations of what she thought she was due and what she ultimately received were shattered. The husband had to defend both actions.

This was a lengthy marriage, life carrying on for this husband as it had always done since he left school. His father was still in charge of the farm until unexpected ill health. All the life events of marriage, retirement, ill health and how a family muddles along – it is all there.

Nuptial agreements can be pre or post marriage. They are documents capable of variation as life events arise. Perhaps unromantic but a practical way to record how assets are treated in the event of marriage breakdown. It was a clear intention of the father to gift the land to his son and not to the farming partnership.

The payment of the father’s loan to the son was an express gift to him, not the business. In family law, gifts made by a third party to a spouse are treated as non-matrimonial property and so the wife was not entitled to any of it. Becoming a partner was a surprise to the wife but it had implications for the husband because it occurred during the marriage and so her share of the partnership was a matrimonial asset.

An agreement could have made it clear that these third-party gifts were to be excluded from any calculation of matrimonial property in the event of marriage breakdown. Such agreements, provided they are fair and reasonable at the time they are entered into, are enforceable in Scotland.

As for the wife’s share of the partnership, she came to this quite by surprise, did not have to do anything to acquire it and yet benefited from a half share of the partnership profit. Although it might have made sense to the running of the farm at the time, was it intended that she share in the asset at all as it created a matrimonial asset?

An agreement again could have ring-fenced the business or at least proper consideration could have been given to the wider implications of assuming the wife as a partner.

And so it is curious to the matrimonial lawyer why nuptial agreements are not more widely used. Think of them as an insurance policy against costly litigation, keeping expectations in check and encouraging you to think of the bigger picture when taking significant decisions in the running of your business.