Is your livelihood threatened by Victorian Law?

Like most people, I cannot resist reading those articles that begin along the lines of “5 things to do to make a fortune” or “3 ways of succeeding in love”. Hence my eyes were drawn to a recent article entitled “10 Common Financial Mistakes that Farmers Make”. The first, and apparently most common mistake, came as rather a surprise.

Myself, and plenty of others in advisory professions, have spent plenty of energy in encouraging our farming clients to ensure that they have written and up-to-date documentation covering their business arrangements. However, the article stated that not having a written partnership agreement was still the most common, and most significant, financial mistake made by farmers.

In my experience, this is most common in the situation of a “family partnership”, where the parties merely presume that they are in partnership and find it too awkward to confirm it properly. This really is a big mistake. Should something happen to the “senior partner”, those left behind may well find that they are not in fact partners in law and may struggle to retain the business. For example, if the Father was to die intestate (i.e. without leaving a will), the farming business could pass to his wife, leaving the children with nothing, even though they considered themselves “partners” and in effect on the ground may be running the farm day to day. The wife could be separated and/or may not be the mother of the children or may see a land/asset pay day through sale.

Even if the business structure is held to be a partnership, with no written agreement, the outcome is far from ideal and probably not what was intended. Should a partner die, wish to leave the partnership, or be in serious dispute, then the partnership would be governed by the 1890 Partnership Act – enacted when Queen Victoria sat upon the throne!

Another situation that can cause serious difficulties is where somebody thinks they are a partner, but others involved see them in a different light. This may seem far-fetched but it can arise, usually involving children within a farming family. One or more of the children may view themselves as partners, perhaps due to some long forgotten conversation, but have a minimal involvement in the business. Again, we would refer to the 1890 Act, which isn’t terribly explicit, so costly court proceeding could result.

It hardly seems ideal that 125 year old legislation could ruin your livelihood, but that could be what awaits for those operating a farming partnership without a written agreement. I should not now need to tell you what to do! And while you are about it, why not ensure that your other legal documents are all up-to-date.

If you would like any further information or to discuss any rural related matter, please contact Tom Wills, head of the agriculture & estates department at Sintons.

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