In the Bethell family for generations, the family farm at Weka Pass in North Canterbury has been sold by the third generation: from clogs to clogs in three generations, as the Dutch have it.
High living, a crippling drought and divorce all contributed to the demise of the Bethell farming dynasty. Third generation farmer Sam Bethell and former spouse Diana were in court picking apart what was left of a multi-million dollar farming operation. From a farm sold for $6.8 million, Sam is left with the residue of their farming trust, Stumpy Trust, holding net assets of approximately $1.2 million and Diana with $300,000 extracted by court order from Stumpy Trust and settled on a new family trust in her favour.
Economic history is littered with examples of family businesses falling apart in the third generation: the first generation builds up the business; the second, imbued with their parents’ work ethic, build on the existing asset base; the third generation, having enjoyed a life of moneyed plenty, throw it all away.
Sam and Diana were married in 2000, separating in 2014. The High Court was told of a lifestyle enjoyed by few New Zealanders: a string of polo ponies and extensive sporting trips for Diana before motherhood intervened; expensive toys for Sam enjoying private use of a Cessna aircraft and later a helicopter plus always the latest in farm machinery; a farm homestead fitted out with swimming pool and tennis courts for the family together with overseas family holidays. With high levels of debt and heavily dependent on commodity prices, the farm did not survive a change in business strategy from 2011. The farm was progressively de-stocked with sheep and cattle numbers reduced, replaced by mixed cropping and grazing. Exceptionally dry years through 2014-2016 hit farm finances. Crop yields plummeted.
Evidence was given of Sam receiving in 2005 a cash payment of $2.2 million and a debt owed him from the Stumpy Trust of $3.6 million. These assets were his separate property.
After Sam and Diana separated, the High Court was asked to identify what was relationship property and what was Sam’s separate property. The Bethell farm was transferred to the Stumpy Trust in 2005. Substantial tax losses were carried forward from a predecessor trust. A lack of clear accounting separation between Sam’s personal business assets and the Trust resulted in Sam’s $915,270 accounting credit with Stumpy Trust being treated as relationship property. This imprecise accounting relationship had flowed from the fact income taken from the Trust had been effectively tax free in Sam’s hands. Diana was entitled to $457,600 of this relationship property accounting credit as her half share.
Justice Nation ruled Diana was entitled to a further payment of $419,470 to achieve equal sharing of all relationship property in addition to the creation of a new family trust in her favour with capital of $300,000. She keeps a horse float, ponies and horses. Sam keeps control of the Stumpy Trust, together with assets he needs to continue his farm contracting business. The court was told Diana now works as an agricultural sales rep.
Debts incurred by Sam in an unsuccessful Christchurch property development were not relationship debts; they remained his separate debts. The High Court was told Sam joined with three others in buying land in Johns Road, on the outskirts of Christchurch. The land had potential for rezoning and subsequent development. The land was not re-zoned, one of the investors was bankrupted and the regional council subsequently imposed a contamination notice imposing substantial clean-up costs. The investment was written off. At the time of the court hearing, Sam owed $373,800 for his share of interest payments and de-contamination costs. The investment was separate property. There was no evidence the Johns Road purchase was intended to be for the joint benefit of Sam and his then wife. The Johns Road 2007 purchase was funded out of his separate property.
Bethell v. Bethell – High Court (4.12.18)
19.018