Buying the Farm: Things to Look for in Negotiating a Farm Divorce Settlement

January 2, 2013

In Minnesota, divorces involving farms and farming operations can be some of the most complex and difficult matters to resolve. In addition to the emotional issues concerning the family farm or a farming operation that has been in existence for some time, there are also significant financial and cash flow considerations to take into account as well.

It is vitally important when negotiating and resolving a property division involving a farm to understand the nature and character of the farm assets and to take into account issues of cash flow and valuation. Particularly in the current economic climate, the substantial value of a farm operation may be tied up in the land–which the farming spouse needs to retain in order to continue operations. If there is a lack of significant liquid or other assets to divide or transfer in exchange for the land, a circumstance can arise where it is impossible to equitably divide the marital estate at the time of divorce, meaning that payments will need to be made in the future to provide an equitable division. When this occurs, some of the many details which should be discussed and addressed include the following:

  • The amount of payment.
  • The payment schedule. For example, will payments be made on a yearly basis, monthly basis, or some other schedule?
  • Will interest be paid on the principal of the outstanding amount or not?
  • Will there be a lien on property awarded to the farming spouse to ensure payment of the cash settlement? Are security agreements and other documents necessary to adequately protect the spouse who will be obtaining future payments in exchange for the farming spouse being awarded the farm assets?
  • Should assets awarded to the farming spouse be titled in his or her name immediately, or should that transfer be delayed until sometime in the future?
  • Should there be option agreements or are other sophisticated transactions appropriate or desirable between the parties?  If so, what are the triggering events?
  • What happens if the farming spouse does not pay? Should there be specific provisions about the other spouse obtaining assets through repossession or some other consequence, including payment of attorney’s fees, indemnification, etc.?
  • Should spousal maintenance be reserved until the cash settlement is paid in full?

Many times it is necessary or appropriate for divorcing parties engaged in a farming operation to enter into settlement agreements which allow cash flow to the farming spouse and a reasonable and equitable payment over time to the non-farming spouse. It is important to understand and work with experienced attorneys who regularly represent parties in farm divorces to adequately protect your interests.

This information is general in nature and should not be construed as tax or legal advice.