Pre & Post Nuptial Agreements: Protection for the farm or estate

Pre & Post Nuptial Agreements: Protection for the farm or estate

Farmers and estate owners often face unfair outcomes on divorce and separation as the farm or estate is often central to the marriage.  This asset may have been brought into the marriage or may have been gifted or inherited from family during the marriage and would therefore usually be considered non-matrimonial, i.e. not subject to an equal division. If however a married couple and their children live and work on the property then the Court may view this as a matrimonial asset and divide it equally. 

There is also the question of needs.  In some cases the farm or estate may retain its non-matrimonial character, perhaps because it remains in one party’s name, or because the other party plays no role in the business, or because the couple live elsewhere. But what happens if the other party does not work, or is supported by the owner?  In that situation, particularly if there are children, their spouse can legitimately argue that they should be able to live in a similar property and enjoy a similar standard of living.  It can be financially catastrophic for the viability of a farm or estate if large capital sums need to be raised to ensure parity of living standards between the parties.

Ring-fencing assets

One way to avoid this may be for parents not to pass down assets or wealth to the next generation, if they are already married or contemplating marriage. Alternatively parents can ensure that the land is held in a partnership to protect the assets.  However, this runs entirely contrary to good succession planning.

The pre-nuptial agreement option

Despite prenuptial agreements being available as an effective asset protection tool, they are often under-used or mis-used.  The basic law is that prenuptial agreements are binding unless it would be unfair to hold the other party to the agreement.   Therefore, a prenuptial agreement which says that a wife with children, who has little or no assets or income in their own right, is entitled to nothing, will not stand up.   However, a prenuptial agreement which limits that spouse’s claims to a right to occupy a farm house or cottage while any children are minors may well be effective. 

It is accepted that this may not be ideal if that property is central to the operation of the farm or estate, but it is preferable to having to raising several hundred thousand pounds (or millions in some cases) and may enable their children to continue a rural lifestyle.  In addition, when the children grow up the property will return to the family and will not be lost forever.

Contrary to expectations, most people who marry someone with wealth or pre-owned land or an ancestral home, understand why that person would want to protect their assets with a prenuptial agreement, particularly if the person they are marrying is older or has been married before.  So land owners should not be scared to raise the issue – there is a lot at stake.

The post-nuptial option

Even if a son or daughter is already married (perhaps with children of their own) then it is not too late to take steps to protect family wealth, particularly if plans are being made to hand down that wealth.  A postnuptial agreement is just as effective as a prenuptial agreement.  They are less used, because someone is less likely to sign such an agreement once they are married and have certain rights.  However, the person handing down the wealth can make it a condition of any gift or inheritance that the recipient’s spouse signs such an agreement.  The recipient and their spouse, if happily married, can sign the agreement, knowing that the asset will then come to them/their side of the family and can be passed to their children if they do not divorce.

In summary, a prenuptial or a postnuptial agreement can be a very effective asset protection tool if timed carefully and supported by the right advice.   Unrealistic advice or a badly drafted agreement will render it worthless. But used appropriately, an agreement can avoid a very substantial payout and even save the family farm or estate from a forced sale to raise funds.