Divorce and The Family Farm: “The times they are a-changin”

May 12, 2014

Farming is not just a business; it is a way of life. Historically, divorce rates for farmers and ranchers in the United States have been well below the average divorce rate for the total population. The reasons are many. Farm families are generally closer as a family unit than non-farm families. Farm couples generally have similar values and cultural backgrounds, are more likely to be religious, and are typically in rural areas where divorce is less common and where “family values” are more cherished. In the past, there were fewer opportunities to “stray” and less economic opportunities for farm wives.

But, as Bob Dylan would say, “The Times They Are a-Changin.” The world is getting smaller. The impact of the outside world, particularly for farm wives, is significant. More farm wives now work off the farm and have their own lives separate from the farm. Additional stresses, pressures, and problems in the farm marriage can occur when wives work off the farm. But wives working off the farm is not the only change occurring. The pace of farming is faster and more complex. Farm work is (still) difficult and time-consuming. But also, to a significant degree, the fact that the parties’ parents are living longer, and may still be involved in the family farm operation or, in some cases, retain the label of “patriarch” or “matriarch,” contributes to family strife and stress. And in recent years those of us who routinely help farm spouses through the difficult process of dissolving a marriage have seen a rapid increase in upward social mobility. Many, but certainly not all, farm divorces are initiated by the wife–not an atypical phenomenon for divorces in general. But a new phenomenon for farm families too is the increase in farm wives seeking divorce very close in time to the last child leaving home for work or college. Yes, “empty nest syndrome” seems to be hitting farm families particularly hard. Divorce is indeed impacting the family farm to a greater extent.

Nobody likes to talk about divorce, even though statistics still show that nearly half of all marriages end up going down that road. Farmers in joint ventures with their parents, siblings, or other business partners naturally have a higher probability of divorce impacting their farming operation. When any of your business partners’ marriages dissolve, you can be sure the event will impact your bottom line as well. For those reasons, and many more, marriage and family farm succession planning plays a vital role in determining whether or not divorce impacts your farm, and to what extent.

Prenuptial agreements are now common operating procedure for the next generation of farmers. When family farms are transferred from one generation to the next, it is vital to understand whether or not the family farm will be divisible in the event of a divorce. A simple error or failure to properly classify a gift or inheritance can have dire consequences down the road. Many agreements between the generations are done on a handshake and there is no formal agreement concerning ownership of assets or division of income. Those realities make dissolving a farm marriage much more complex, difficult, and costly. When marriage and farm succession planning is done correctly, the likelihood of divorce decreases; when done incorrectly (or more likely, not at all) the likelihood of divorce significantly harming the farm operation skyrockets.

Farm divorces are extremely complex. Dividing marital property in a farm setting is highly fact-specific and requires significant effort from the parties’ legal counsel and other trusted advisors. Including bankers and accountants in the conversation is highly advisable. In Minnesota, the courts divide assets “equitably,” not “equally.” This means judges have significant discretion to divide the family farm and other assets. Minnesota also utilizes the concepts of “marital property” and “non-marital property.” If you are married and your family owns or operates a farm, you must understand these concepts. Generally, non-marital property is any property that was acquired before the marriage, acquired by gift to one spouse but not the other, or any inheritance to one spouse and not the other. Non-marital property also includes any increase in the value of non-marital property, except increases in value by “marital effort.” Generally, marital property is any property acquired during the marriage. Marital property also includes the increase in value of any property through “marital effort.” Prenuptial agreements can help exclude the increase in value of non-marital property obtained by marital effort.

When divorce occurs, the pie gets divided and neither party has the same level of financial security going forward as they had during the marriage. Even when farmers are doing well, a divorce can be financially and emotionally devastating. When divorce happens, care should be taken to lessen the negative impact of divorce on the family farm by negotiating cash payouts over time, rental agreements and options to buy for land awarded to the non-farming spouse, as well as accounting for likely and non-speculative tax consequences related to the assets. Careful analysis and use of business valuation techniques, and other legal methods are also important.

But that is not to say that it is advisable to take unrealistic or extreme positions if you are faced with a divorce. Going for the jugular is typically not advisable. The best course of action is usually to work quickly with competent professionals to determine the financial rights and obligations of the parties and avoid long, costly legal battles and the courtroom.

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