Family farming – the next generation

Over the past 45 years there has been a cultural shift in how people form intimate relationships. In 1975, only 16% of couples lived together prior to marriage. Skip forward to 2020 and this had risen to almost 82%¹. The number of people living and raising children in de facto relationships has increased, and in farming families, it is not uncommon for children’s partners to be welcomed into the home and business prior to (or without) formalisation of the relationship through marriage. Couple this with a 44% divorce rate, and the rise of subsequent marriages, and the modern relationship landscape can pose significant challenges for succession planning, particularly for businesses that are built on familial relationships.

How can a farming family protect the interests of a multigenerational business from relationship breakdowns?

Increasingly, families want their succession planning to take into consideration what might happen on the breakdown of a marriage or a de facto relationship. This is particularly important in circumstances where children are part of the family farming operations or might stand to take over (or later inherit) significant assets or property.

Financial Agreements (sometimes referred to as pre-nuptial agreements or cohabitation agreements) known as Future Planning Financial Agreements or Finalisation Agreements can be created and used at different stages of a relationship, not just prior to marriage.

Since 2001, married couples have been able to enter into Financial Agreements under the Family Law Act 1975 and in 2009, this was extended to include couples in de facto relationships. Family Law is a federal jurisdiction, the same laws and agreements apply across Australia.

When can Financial Agreements be made?

Financial Agreements can be made at the various stages of a relationship:

• before a marriage or relationship begins;
• during a marriage or relationship; or
• at the end of a marriage or relationship.

What can Future Planning Financial Agreements regulate?

In the event of a relationship breakdown, Future Planning Financial Agreements can be used to regulate:

• the division of property, liabilities, or how superannuation will be dealt with; and
• what obligations the parties might have to pay or receive spousal maintenance.

Using Future Planning Financial Agreements to safeguard assets

Future Planning Financial Agreements can also be used to “quarantine” property and inheritances or to specifically deal with financial assistance provided to family members. For example:

• initial contributions by one or both parties at the commencement of a relationship can be quantified and returned to the party that made the initial contribution on separation;
• gifts or inheritances received during a relationship can be excluded from the property pool that would ordinarily be divided on separation;
• specific provisions can be included about “family property” being kept separate and distinct from joint property that a couple acquired themselves. This can be an important aspect of future planning where there is a desire to keep family farming properties or farming partnerships away from the possibility of a forced disposal due to a property settlement; or
• recording how any contributions from third parties (to the relationship) might also be dealt with. A common example of this is where parents might lend or gift money or property to a child during a relationship. It becomes important to ensure that there is a written understanding about how the funds are to be used and whether these need to be repaid at a later time or if triggered by certain events such as a relationship breakdown.

Preparation of Financial Agreements

Financial Agreements need to be prepared properly and take into consideration:

1. the unique circumstances of the parties and, where relevant, their family operations;
2. the technicalities of the legislation that governs these types of agreements; and
3. the legal precedents concerning whether these types of agreements are fair and equitable and to ensure that people entering into these agreements understand the effect of these agreements on their rights and how they may be disadvantaged by entering into a bad bargain.

There has been much litigation over the last 15 years about Financial Agreements where they have not been properly prepared, where parties have not received independent advice as to the advantages and disadvantages of these types of agreements, or whether one or both of the parties have been subject to undue influence or unconscionable conduct.

A Financial Agreement that is properly prepared will be enforceable at a later point in time, as long as it has been prepared in accordance with the legislative requirements and is not the product of an unfair situation or entered into under duress.

Financial Agreements can act as an insurance policy for what might happen in the future. Insuring against various risks is part of modern-day life and premiums are paid to help mitigate risk. Most of the time, like your farmpak policy, a Financial Agreement will be put into a draw and left there until it is needed. It might be one of the steps in your succession plan that keeps you away from being involved in a family dispute or costly and stressful litigation.

¹ Census data from the Australian Bureau of Statistics