Calculating a farmer’s income for child support or spousal maintenance is often the result of averaging income over several years. This makes sense when a farmer’s income is constantly moving up and down. Over the past few years, averaging the last three to five years has seemed appropriate for many farmers; and for some, a longer period (seven to ten years) was more appropriate. Now, however, when there is a clear indication that farm income is going to drop (and drop substantially for many) does it make sense to average a number of “good years” as the basis for determining the cash flow from the farm operation going forward into what may be several years of little to no income? For many, the answer is an emphatic “no.” In order to properly advise a judge on the forward-looking income and cash flow of a farming operation, it is important to understand emerging farm economic conditions and also to discuss engaging expert witnesses who can give credible, relevant information to the court on the farm economy and how a downturn will impact a particular farming operation. Under Minnesota law, judges can consider a downturn in income if a party can show that net self-employment income is lower because of economic conditions that are directly related to the source or sources of that person’s income.
If deemed appropriate and cost-effective, experts can testify to rising input costs or falling prices for commodities to be sold and can also address fluctuations in other expenses and factors related to the farming economy (as well as the individual farmer’s circumstances). This is particularly important because farmers have an inconsistent cash flow and need to be able to rely upon their ability to make their child support and spousal maintenance payments on cash available. If farmers need to borrow from an operating line of credit or some other source in order to fund living expenses during the growing season, for example, there may be additional carrying costs that are associated with the money needed to pay child support or spousal maintenance. All of this can be discussed and factored into the analysis particularly when there is a dip in the economic cycle.
Many times, legal arguments can be made to incentivize both parties to reach some type of middle ground that will avoid court altogether. But in other cases, expert testimony is necessary to support a claim, particularly if the economic circumstances are limited to a certain segment of the farm economy, the judicial officer is not necessarily familiar with farming, or if there are concerns about the farmer’s testimony being found credible or not.
This information is general in nature and should not be construed as tax or legal advice.