Dividing the Farm: Using Options to Rent and Options to Buy When Farmland Has to be Transferred

November 10, 2013

Farm divorce cases in Minnesota are extremely complex. In addition to understanding how to equitably divide marital and non-marital assets, Minnesota farm divorce lawyers must understand the farm business, accounting and tax issues, as well as banking and finance principles.  Many farm divorces require a significant understanding of business transactions and valuations, as well as an understanding of secured transactions and the Uniform Commercial Code.

The goal in dividing marital assets involving a farm are usually to provide the farming spouse with all of the farm assets and provide the non-farming spouse with other assets or a cash payout over time under reasonable and fair terms and conditions.  But a cash payout is not always possible or the ideal solution.  There may be cash flow, taxation, or other issues that make a division of farm assets (typically farmland) advantageous or necessary.  Sometimes, there are just not enough assets to go around and the farmland is valued too high to allow the farmer to cash flow the buyout.

Awarding farmland to the non-farming spouse is rarely the ideal solution, since it violates the first principle of divorce–completely separate the parties financially.  But when it does occur, it is important to carefully structure any agreement to allow the farming spouse the option to rent the farmland and an option to buy the farmland from the non-farming spouse if he or she ever decides to sell.  Sophisticated documentation and contractual language is required to provide enforceable, understandable methods for ensuring that the farming spouse is able to enjoy the benefit of his bargain.  With high prices for land rent and commodity prices in substantial flux, farm divorce lawyers and their clients need to discuss and take seriously how to appropriately structure rent options and purchase options as part of the divorce decree.

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