Recent statistics state that over 50% of all marriages in the United States will end in divorce.  The statics also suggest the divorce rate is even higher if there is a family business involved.  As for farms, some experts opine that more farms will be lost to divorce in the coming decade than were lost in the 1980’s farm crisis.   Safe to say we probably all know of someone who married a farmer, married into a farm family, or started farming with their spouse, only to find out later on farming was not all it appeared to be.

            Without a doubt, a farm divorce can decimate a farming operation.  Many states have divorce laws that essentially split the assets 50-50 between a husband and a wife.  That means, with the stroke of judge’s pen, half the farm can be gone.  From there, the remaining half is unable to sustain itself and the farm collapses.  Factor in other aspects such as capital gains tax for having to sell and so forth, and you can see that the parade of horrible continue to roll right along.

            What can be done to keep a farm from being devastated by a farm divorce?  Well, for starters, a prenuptial agreement can greatly help.  This is an agreement that spells out various terms and conditions that will govern a divorce between a husband and wife.  It is sort of like a rule book that spells out what happens should the couples decide to go their separate ways.  Without a doubt, you’ve likely heard all sorts of urban and rural legends about prenuptial agreements.  Be it as it may, these agreements, if done properly, arise to an enforceable contract that should hold up in court.

Second, depending on the state you are in, you can even enter into a post nuptial agreement where terms and conditions are agreed to after the marriage has started.  In other words, an agreement is generated after the parties have been married that lays out various rules should a divorce arise. 

Third, using an LLC or trust can also be effective.  If one generation gifts or transfers to another, having an LLC or trust can be very helpful in protecting assets in case there is a divorce.  Older generations should always err on the side of caution when gifting or transferring assets to the younger generation that could walk on down the road via a divorce.  So, utilizing a corporation, LLC, or trust is a good safety precaution.

So what happens when none of the above stated techniques are utilized and a divorce occurs?  First, it is important to remember that farming is a business.  When two people decide they no longer want to conduct business with each other (i.e. stay married), there is a carry over to the actual business (i.e. the farm) that needs to be addressed.  Generally, at least one of the parties desires to carry on the farm.  This can be tough if the other party wants cashed out of half the farm assets but the other party wants to keep farming.   In other words, it is pretty hard to keep a farm intact when half of the assets may be walking on down the road.

However, if the parties are willing to work together, there is no need to kill the golden goose.  I’ve seen divorce agreements entered into where the farm stays intact, and the both parties continue to receive benefits from the farm operation.  Generally, a well crafted trust or other type of arrangement will be needed.  In any event, just because a husband and wife have decided to stop doing business together in the form of marriage does not necessarily mean they can no longer share ownership in a farm business.  Simply stated, if the parties are willing to set personal feelings and animosity aside, and focus on what makes business sense, a lot can get accomplished and keep the farm intact.

It is important to remember that farm divorce can rival any natural disaster or other terrible infliction onto a farming operation.  A little bit of planning will likely go a long way in protecting the farm should a farm divorce occur.  Once the farm divorce horse has left the barn, there still is time to work so as to keep the farm intact.  However, it will take willingness from both sides to strike the appropriate agreement so as to keep the farm intact.

John J. Schwarz, II, is a lifelong farmer and has been an agricultural law attorney for 12 years. He can be reached at 260-351-4440, john@schwarzlawoffice.com, or visit him at www.farmlegacy.com.

  These articles are for general informational purposes only and do not constitute an attorney-client relationship.