Cohabitation: How to protect the family farm
Read time: 5 minutes
Over recent years, we have seen an increase in the number of couples living together but choosing not to get married. Most people are unaware of the potential legal implications of the actions they take (or don't take) in relation to their property and finances during their relationship.
Potential impact on the family farm
In farming families, succession plans are often in place for adult children gradually to take over the running of the farm. But no family is immune from relationship difficulties. Where property and land is an intrinsic part of family life and business, a separation within the family can have far-reaching implications, even (or especially) if the couple has not married.
John and Susan live together in the farmhouse on John's family's farm. John works on the farm with his parents and sister. They are all partners in the farm business. The farmland is owned by John's parents, who are gradually transferring land, property and some savings to John and his sister.
John and Susan are not married. A few years into their relationship they had children together, Emily and Jack. Shortly before Emily was born, John and Susan moved into the farmhouse and John's parents moved into a smaller cottage on the farm. Susan used her only savings to fund an extension on the farmhouse and a refurbishment of the kitchen, which she also project managed. This significantly enhanced the value of the farmhouse. When the children started school, Susan began helping out with the farm accounts, and there had been talk of bringing her in to the partnership.
Sadly, John and Susan drifted apart and decided to separate. As John works long hours on the farm, they have agreed it makes sense for the children to spend most of their time with Susan. John had thought that it would all be ok as they weren't married, so he wouldn’t have to share anything with Susan.
John receives a letter from Susan's solicitor saying that she has an interest in the house on the farm because of her contribution over the years, and that she also needs housing for herself and the children, and she believes John has sufficient assets to pay for this.
Does Susan have a claim?
Susan could have a claim in respect of her interest in the house. If she was successful and the court found that she did have an interest, a judge would be able to order a sale of the property to realise that interest, under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA).
Susan may also have a claim on behalf of the children, under Schedule 1 to the Children Act 1989. This would be to ensure that the children's housing needs are met until they are 18 (or beyond in more unusual circumstances). This is usually by way of a loan from the other parent (John), to be returned once the children are 18.
Depending on available assets, she could potentially also claim for additional capital payments and school fees. John would also have to pay child maintenance.
This is a complex area of law. The court's decision can have a detrimental impact upon family-run businesses, especially farms. If John were forced to sell assets to realise cash to lend to Susan, this could damage the business and have an impact upon cash flow (neither of which are reasons for the court not to make an order).
The law around separation of unmarried couples is especially complex and can result in high legal fees if matters cannot be resolved out of court.
How to protect the farm
It is important that the family as a whole seeks good quality advice about asset protection and inter-generational wealth planning, to make sure first, that they are managing the farm in the most tax-efficient way and also to ensure that the farm is protected in the event of relationship breakdowns, whether after marriage or cohabitation, or if someone dies (Susan could have similar claims if John died). Considering the impact of relationship breakdown should also be a factor when restructuring takes place.
At present, very few families have proper discussions or record their intentions in writing, and so disputes arise when things go wrong.
For a farming family member who is thinking of moving in with someone, it would be worth having a cohabitation agreement, to ensure that your intentions are clearly set out and to try to avoid a dispute at a later stage.
The purpose of this would be to protect the farm assets and provide reassurance to the family as a whole as to what will happen if things go wrong. The agreement could include:
- Conditions of the couple's occupation of a property;
- Terms of working on the farm, including remuneration;
- Future expectations; and
- What happens if the relationship ends.
Thought would need to be given around how any potential payment would be financed – whether by a sale of land or borrowing and it is worth doing this as part of planning generally, to ensure that any impact on the profitability of the business (and of course future viability) is kept to a minimum.
Another key time for seeking advice is if a couple are planning to marry. The law changes on marriage (and breakdown of marriage) and so again, where a farming business is concerned, it is important to understand the legal implications of getting married at the outset, so that provision and protection can be made to avoid any lasting damage to the farm if the marriage doesn’t last. This could include entering into a premarital agreement (prenup).
If there is no cohabitation agreement in place and a separation is looking likely, it would be sensible to seek legal advice before, or as soon after, separation as possible. This will hopefully ensure that it is handled in the most efficient way to protect the farm business, to establish a conciliatory approach from the outset and to aim to reach a resolution, without the need to refer matters to court.