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Farm advice: Prenups and postnups

Many farm businesses are run by husband and wife teams. Take time to think about a Contracting Out Agreement, acting as a business prenup.

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Farmers, whether dairy, beef, agriculture, horticulture, or forestry, have played a significant role in colonial New Zealand and in shaping our history. However, the business of farming has evolved, and with it, the need to consider prenup and postnup contracts.

Traditionally tough, hard workers with physical strength and determination, many were also largely solitary in their work. Frequently, the farmer’s wife worked solidly behind the scenes, caring for the family, raising the couple’s children, and contributing to the rural community. Together they progressed their farm with the expectation or hope that ownership of the farm would be passed on to the next generation so they could advance the family legacy. There was no ‘D’ word in their vocabulary or community — it just didn’t happen, because you were married come what may; it was your lot and you made it work.

Fast forward to the 2000s and farm tech, knowledge, and history have advanced the primary industries at a rapid rate and the farm has evolved into a business. Like other business owners, legal protection is becoming increasingly important to safeguard both the asset and the future and historical family legacies.

What has not changed is that it’s still physically demanding, often involves a husband-and-wife lifestyle, and, at times, is solitary and family intergenerational. What has changed is the ‘D’ word, with divorce now more prevalent in rural communities.

Let’s be clear — no one gets married with the thought that it’s going to end, but from a business standpoint, it makes sense to preserve a sizeable asset and investment. The primary motivation for couples in a family business, their own business, or business partnership, including an intergenerational partnership to establish a Contracting Out Agreement or prenup before marriage, is to safeguard the integrity and interests of the business.

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A prenup can protect the assets of both parties that each held before entering the relationship

What is a Contracting Out Agreement or prenup?

Even the word ‘prenup’ will send people into a panic or wonder. The more the myth is separated from the facts of a prenup, the better any discussion between a couple will go. Celebrity culture has certainly contributed to some perceptions about what a prenup is and what can happen, such as fights over money and messy divorces as the prenup is called into question. This has led to people assuming greed, non-commitment, or a dominant personality when one party raises the subject of one in a relationship. 

Contracting Out Agreements, sometimes called Section 21 Agreements, or prenup, is a legal contract normally signed before marriage that covers the distribution of assets in the event of divorce or death. They can protect the assets of both parties that each held before entering the relationship and can also protect assets that build up during the marriage. A prenup gives a couple clarity around the financials rather than ambiguity about each of their responsibilities and obligations. The learnings are many, including the benefit of open and honest communication across all areas of their finances, including budgeting, investments (together or separate), and debt management.

There has been a rise in many people entering relationships with their assets, e.g. a livestock herd or family farm. If there’s no prenup in place, the assets of one party could be subject to division between the parties. This is also the case for a family inheritance should they separate, as the inheritance may also be subject to division. Depending on the prenup framework and what’s mutually agreed, a couple can continue to run individual businesses and accumulate assets independently of each other, as well as together. Prenups are not just for people getting married; they can also be drawn up for those in de facto relationships.

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Prenups and postnups not only protect assets but also foster open communication, ensuring a resilient foundation for both marriage and business

Reasons for entering into a prenup

1. Protection for their business when in business together: being able to mutually agree in advance on how the business would be managed, with a prenup in place, in the event of divorce. If needed, it can then be actioned without conflict and minimal emotion. It also delivers:

  • A clean, simple, and less painful process that can be followed without argument or contradiction.
  • The removal of potential third parties who could otherwise steer outcomes.
  • Reduced disruption to the farm business as tension associated with arguments and heightened emotions from how to manage the business in the divorce has already been accounted for.
  • Lessened business continuity risk, which, in turn, can help preserve the value of the business asset and/or the assets within it. This ensures the value of the business investment is better protected.

2. Protection for a business partnership: when two or more people own a business such as a family-owned farm, e.g. siblings, for each to have a prenup with their business shares written in, ensures that should the worst happen, the business will be exempt from division. This limits the potential impact on the business asset and other partners, whereas if there was not one, the business shares could become subject to division in the divorce. 
3 Standard legal protection: one or both parties believe their relationship to be long-term and want to protect their respective assets.
4. Second marriage: one party is marrying for the second time and wants to limit any loss of assets should things go wrong. 
5. To protect children from previous relationships: blended families can be complicated. A prenup lets one or both parties specify what happens to their property when they die while providing for the surviving partner. This is in conjunction to a will. Without a prenup, the surviving partner may contest a will to claim a significant portion of the deceased partner’s property, leaving much less for the children.
6. To clarify financial rights: a couple, regardless of their wealth and family assets, may wish to legally agree on their rights and responsibilities during their relationship.
7. One party may be employed by the farm but does not hold ownership rights: for instance, the ‘partner/spouse employee’ or ‘family member employee’ of the farm owner works as an employee, actively engaged in farm operations, receiving regular wages commensurate for their work. This terminology reflects their dual role as both a partner to the farm owner, as well as an employee, without any ownership stake in the family farm.
8. Minimise disputes if there is a separation: prenups can clearly outline how property is divided upon the relationship ending. 

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It’s crucial to keep any prenup, postnup, or business-related policy such as a Rules of Engagement updated as the business expands or changes

Benefits of having a prenup

  • A prenup can resolve the most significant economic issues that would exist if there was a divorce.
  • The former couple can potentially avoid long court battles as they’ve already decided on the financial side. 
  • It accounts for changes that neither party can either foresee or anticipate.
  • Both parties are on the same page when it comes to the financial side and who came in with what. They will also have had a broader financial discussion that could extend to retirement and estate planning.
  • They have together created their arrangement and consciously decided how they want to share property with their partner.
  • When there are multiple shareholders, as in a family farm or business, each will want to make sure that a new shareholder (to replace the one selling or departing) cannot be introduced without their prior consent, depending on how the agreement has been legally drawn up. The agreement in such a scenario might stipulate that the shares owned by the departing co-owner/shareholder must first be offered to existing shareholders. Adding to that would be a pre-agreed formula for calculating the value of the shares. 
  • It can provide speed and efficiency of the process while minimising emotion through argument or holding of different viewpoints/positions.
  • A prenup can also protect one party from having to pay the party’s debts.

If you’re already married or in a de-facto relationship and buying a farm, business, or investing in one, it’s never too late to create a prenup. Doing so, during marriage, is termed a postnup. The same reasons and benefits apply to creating one. 

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Reasons for entering into a postnup:

  • As a couple, you talked about a prenup but never got one.
  • You’re looking to buy or start up a business together or invest in one
  • on your own.
  • One partner has become financially irresponsible. If irresponsible, they can also sign that the other party won’t be responsible for the debt. 
  • It can actually save the marriage, as financial stress from one person’s investment is no longer a financial burden to the other person.
  • A postnup can protect children from
  • a previous marriage.
  • Something has changed financially. This could be that one has inherited
  • a legacy, money, or shareholding in
  • an investment and wants to protect it.
  • It can also be in the case of one party purchasing or starting up a business.  
  • A couple may already have a prenup and want to add an inheritance postnup.

What’s your agreed business plan in the case of your divorce?

We see business-related couples at Equal Exes, and I’ve worked with individuals who were farming along with their spouse or where one will have a business separate from the marriage.

Separating is an emotional and difficult time without having to think about how you will have to continue to work together while continuing to make decisions together. The relationship changes from an intimate one to purely a business partnership/relationship and that of a co-parent (if relevant). This is why it’s a good idea to plan with a ‘Rules of Engagement’ policy. The document should allow both parties some breathing room to continue to work day to day alongside each other until the bigger decisionsare final. 

A Rules of Engagement policy can include:

  • The basics of agreeing to treat each other with kindness and respect.
  • Agreeing not to disparage each other in front of others, especially farm workers or staff.
  • Documenting who’s responsible for what areas of the business and what each of your day-to-day roles and responsibilities are.
  • A communication plan that encompasses how roles cross over day-to-day and how you will communicate.
  • Include a ‘Delegating of Authority’ document and consider what that should look like.
  • What’s the current financial sign-off process for day-to-day and bigger business purchases and decisions and does this allow for good business decision-making?
  • A business mentor or impartial person you both trust who would help you navigate major business-related decisions?

It’s also crucial to keep any prenup, postnup, or business-related policy such as a Rules of Engagement updated as the business expands or changes. You both wouldn’t want to go to the expense of having them created to then find when you one day need them, that they are out of date in terms of your farm size, turnover, and worker numbers.

When it comes to the farm business financials, also consider the below:

  • If one owns the farm business and the other is only a worker with no ownership involvement, how is this person paid? Are they being paid fairly for the hours they put in and in the same cycle as other workers? 
  • If only one of you works on the farm, are they drawing fairly from the farm income? 
  • Maintaining good financial records is crucial. 

As a farm evolves into a sophisticated business or the family farm is passed on, so do the strategies to protect it. Prenups and postnups offer practical solutions for safeguarding family legacies and can protect both parties in a relationship, and mitigate conflict, just from different positions. While divorce is unthinkable, today’s reality demands proactive legal measures. These agreements not only protect assets but also foster open communication, ensuring a resilient foundation for both marriage and business. 

Bridgette Jackson is a CDC-certified Divorce/Separation Coach with a postgraduate dispute resolution qualification. She’s also a trained divorce mediator (AIMNZ) Relationship Coach (Institute for Life Coach Training) and a member of the Institute of Executive Coaching and Leadership (accredited by the ICF – International Coaching Federation). Bridgette is also an enrolled barrister and solicitor of the High Court of New Zealand.

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Photography: Adobe Stock

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