Published: 06 September 2016
Author: Stringer Clark

More family farmers feel brunt of property settlement

It may be due to the diary crisis or more the continuing pressure on family-owned farms, but whatever the causes I’ve noticed a sharp rise in the numbers of farmers who are facing having to sell the family farm in order to settle a separation or divorce.

Matters typically come to a head in the case where a farm is jointly held by two or more family members. They might be brothers, they may be sisters, or any combination of family members really. The problem starts when one couple’s relationship starts to fall apart when their differences become irreconcilable.

Let’s take an example where two brothers own the farm and at least one of them is married. If that relationship ends up in court, or in mediation, the other brother (or sister) can be joined in Family Court proceedings in order to protect his stake in the asset, and of course his livelihood. This is because the married brother may be under pressure to sell up the farm in order to pay out what his partner is due.

Short of selling the farm itself, the separating brother may agree to take out a second mortgage in order to settle finically with his partner. But what happens if he cannot continue to meed the loan repayments, for whatever reason? I know that it will not be long before the bank comes knocking for their money, in which case the farm can be sold from underneath both of them.

Exacerbating this trend has been the growing value of farming land, or at least good quality farming land, so that many farms are now out of the financial reach of family members to pay out their siblings. That and the cyclical nature of international markets for farming produce is putting enormous financial pressures on many families in the south west of Victoria in particular.

Third party agreements can afford some protection

Family farms carry enormous sentimental significance. People are reluctant to let go of their connection with the land, so much so that farms are increasingly being held jointly be two or more family members. This is fine of course, but it should not blind the parties concerned to the risks they run should one of his or her siblings is forced to sell out or sell up.

Given that approximately one in three marriages ends in divorce or separation, it is a significant risk that is run should someone decide to accept joint ownership of a farm. In the event of separation a property settlement will almost invariably lead to one or more family members being pressured to sell up.

If you are in this position, one thing you might consider is a third party agreement which stipulates what is to happen should one of the owners separate. I know it’s not a palatable topic to broach on the eve of getting married, but realistically the risk that all parties face is significant.