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Who gets the farm? (Part 4) – What’s it all worth

By 27 October 2016Property settlements

Neal Wood

In previous articles I have talked about the importance of understanding the legal structures that are often at play in the background to a farm or rural businesses. You can read more about those matters here.
Who get’s the farm? 
The first steps toward resolution
Property settlements where adult children are involved

Once we have an understanding of who owns what, it now comes time to start putting a current value on those items that will form part of “the pool” to be divided between the parties.

In family law terms we are always talking about the net asset position and it is just as important to understand the debts as it is to understand the assets.

When it comes the debts they tend to fall into three categories.

  1. The debts secured against the land – The main bank loans or overdrafts which are secured by one or more mortgages over the real properties.
  1. The debts secured against the ‘stuff’- The equipment finance or lease liabilities secured over the plant, machinery, vehicles, equipment or stock which are secured over the assets that have been purchased using borrowed money.
  1. The other debts – The business credit cards, money owing on goods or services that are paid on account, unpaid tax to the ATO, loans owed by the business to third parties, loans owed to the owner or a related legal entity such as another company or trust.

The debts are usually quite easy to value. The bank and loan statements, tax returns and Financial Statements for the last three years are all that are required to verify how much is owed and to who. There are a few exceptions when it comes to debts that are owed to “friendly” parties and whether they are genuine or not. For example, debts that are owed by a company which is solely controlled by one of the parties can be treated differently where it seems pretty unlikely that a person is going to sue themselves to recover the debt.

The assets can be a little more complicated but again they normally fall into a few different categories that can then be valued accordingly.

  1. The land – Normally including anything that is land, built on it or permanently fixed to it like the house, out buildings, sheds, yards, tanks and silos. Whether it is free-hold or leased from the Government it still has value. A licenced real property valuer may be required.
  1. The equipment – Chances are if it is in the shed or stored on or around the farm then this is what we are talking about. The list is almost endless but we often come across things like the tractors, harvesters, sprayers, seeders, plows, augers, trucks, trailers, utes, motor bikes, four wheelers, work shop equipment, tools and guns.  There are independent chattles valuers with industry specific expertise that may be required.
  2. The stock, cattle and crops – If it’s an animal or plant that is grown for commercial use then it probably has a value that needs to be taken into account. If it’s a small property then it may be as simple as counting a few head down in the yard or working out the average yield per acre. If it’s at the other end of the scale then it may be time to bring in the helicopter to muster the whole place for the first time in years or require the assistance of an agriculture specialist. I’m yet to come across a commodity that can’t be valued in some way whether it is the number of fingerlings in a growing out pond, prime breeding bulls or an orchard full of Citrus about to be picked. There are expert quantity valuers, agents and auctioneers that can and do prepare independent valuations for family law purposes.
  3. The business – It can be hard to describe but in essence a business can and often does have an underyling value that is more or less than its parts and it is not always as simple as just adding up the assets and taking away the liabilities to work out a figure. Sometimes an entire industry or location can be severally affected by market forces such as overseas imports or mother-nature which make the highly specialised assets used in the business almost worthless to anyone else. If on the other hand the business is highly profitable and which returns a good profit over many years then it may have a commercial value that it can be sold for, whether to someone looking to enter the industry, a competitor or a neighbour. If there are concerns about the independence or expertise of the family accountant then a forensic accountant may be required.

So by now your mind is probably racing across the list of items set out above and thinking it is going to take months and thousands of dollars to get all of this stuff valued by four different experts. The reality is that values of assets can and do get agreed to all the time. The statistics show that only a small proportion of matters ever end up seeing the inside of a Court room and that means that the majority of matters can be resolved, including being able to agree to the value of the assets to be divided without a Court determination being required.

If someone wants to retain an item then you may be able to agree on estimates, the average of a few market appraisals, online price guides or its “book value” in the financials.

In another situation, you and your former partner may decide that it’s better to sell and let the market determine what it is worth after an agreed sale process.

After some sensible discussions it may be that you and your partner can agree on the value of most items and a joint valuation is only require on the “big ticket” items like the real property and the business.

Each matter is different and it is impossible to suggest what should or should not be valued in your circumstances.   As lawyers we are not here to tell you what something is worth. We are here to guide you about what can and should be valued and the process for getting it right the first time.

Some valuations can be of great assistance to resolving your matter and others can have exactly the opposite effect.  For example, if your bank engaged a valuing firm to value your property a couple of years ago for lending purposes they may have arrived at a very different value compared to the same valuer being instructed for family law purposes. Why? It’s all about the instructions they were given. What the bank is looking to achieve from valuing your property (ie. Knowing how much they should lend you if they need to sell you up to ensure they are repaid quickly) compared to a family law valuation (Knowing how much you could expect from an orderly sale of the property after proper marketing over a period of time) can produce very different results.

Even though your matter may never be one that goes to Court it can be comforting to know that the experts involved in valuing your asset pool know what they are doing, know their obligations to you and the Court and are prepared to stand behind their report if it needs to be relied on and tested.

So once we have a property pool and know what it is worth it is time to start looking at some realistic options to resolve things and how to achieve your optimal outcome. I will explore that matter next month.

Read Part 5 Here