The Family Law (Scotland) Act 1985 provides for fair sharing of "matrimonial property", which is all the property belonging to the parties at the date of separation which has been acquired during the marriage, but excluding gifts or inheritances. Matrimonial property can be shared unequally if justified by "special circumstances", and a common example of this is where the source of funds used to acquire a matrimonial asset came from outwith the marriage.
What is matrimonial property?
So starting from those basics, when acting for any divorce client, the first thing to ascertain is the matrimonial property. In farming cases, that can often be a very complex question.
The most valuable asset will often be the land. However, this may be excluded from matrimonial property because it was either a gift or inheritance from the farmer's parents. This does sometimes need to be checked - is it clear that it was a gift, or was there any consideration for the transaction?
If the farming business is conducted via a partnership, it is essential to find out when that was established - before or after the marriage - or whether the farmer's interest in this was also gifted to him. There might also be issues to investigate with regard to the interaction between the land and the partnership, as even if title to the land is held in the farmer's sole name, it might still be held to be partnership property, depending upon whether partnership funds were used to acquire the land; whether it is included in the partnership accounts; and the circumstances of the acquisition generally.
Quite often in farming families, the business and ownership of the land are sorted out and passed on when the next generation marries. Sometimes, an accountant will advise the farmer to save tax by making his spouse a partner, or transferring assets to her, at the point of marriage. If the marriage then doesn't work out, that tax saving starts to look like a false economy, as the transfer of assets or formation of a new partnership may have brought pre-marital assets into "matrimonial property".
If there has been conversion to "matrimonial property" in this way, the farmer can argue that there should be unequal division of the assets, because the assets stem from pre-marital property. This may result in the Court splitting the assets unequally - but this is an area which lies within the discretion of the Court.
Another difficult aspect to farming cases is how to fund a divorce settlement, given that often most of the farmer's wealth is tied up in the land and business.
The farmer might argue that sale of part of the land is not an option, either because sale of a small part of the farm would not be marketable, perhaps due to access issues, or because reducing the size of the farm would mean that the farm business loses profit and becomes unviable.
Another option is to arrange borrowing, although this may also not be straightforward. If the farmer is a partner along with others in the family, a bank may not be willing to lend directly to him, rather than to the business as a whole, particularly if the land (over which security would be taken) is held by the business rather than in the farmer's sole name.
A concern for many farming clients is how to pass on the land and business to the next generation, and if both parties are in agreement about that objective, one possibility is to agree a family-based arrangement, perhaps looking more to preserving wealth for future generations than the strict terms of the law.
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