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How to Preserve Farms Through Divorces

The Problem: 

My wife and I have been married for 33 years. Our farm has grown through hard work, good fortune, inheritances, and borrowed money. Our three children are all through college and out of the house, although one is back farming with us. I know that every marriage, including ours, has its ups and downs. Last week, my wife informed me our marriage is over. That really hurts, but now I am concerned this could also destroy our farm and our son’s farming future. She did comment that she did not want to hurt the kids with our divorce. What should we think about as we go through this process? 

The Solution:

This is an extremely difficult question to answer or even know where to start. Your farm did not grow to the size it is overnight and, likely, your marriage did not fall apart overnight. In the past, it seemed divorces were more common with younger couples when someone saw something that looked better on the “other side of the fence.” Now, divorces seem to occur regularly at all ages.

Divorces happen, and seldom does it only affect the two people involved. When speaking, I have often said the four D’s could all be problematic for farm families: death, debt, divorce, and disability. Right now, it probably seems odd to focus on preserving the farm as you are losing a marriage. For some, the farm becomes so important that the marriage is second.   

Getting back to the pending divorce, following are seven effects on the farm to watch out for.

  1. If the divorce requires a large buyout, that could be like a death occurring. It’s hard to buy the same assets every generation, but a divorce buyout may be like buying the same land twice in one generation!
  2. In spite of your differences, do you and your soon-to-be-ex spouse still agree on passing the assets to your children? If yes, then a buyout may not be necessary, and tools such as trusts and life estates can still be implemented without destroying the farm.
  3. Determining income for two people can be tricky. You probably have what you have because you lived frugally and reinvested in the farm. Determining an agreeable income for both people can be a challenge, because it may not correlate to the large farm asset value. Two separate incomes may feel like another farm payment. 
  4. Long-term care issues are still issues. What is the plan if either person ends up in a care facility? Where will the proceeds come from? 
  5. Beneficiary assets. IRAs, 401(k)s, etc. can often be very lopsided in farm situations due to previous contributions.
  6. Minimize paralyzing assets. Consider including language that allows the farm to continue growing while generating income streams to owners and people actively involved.
  7. This is likely to be messy. Be prepared to compromise to accomplish the end goals. 

Advice for the next generation

  1. Choose wisely. Agriculture is challenging. Having a spouse who understands is very helpful. 
  2. Communicate regularly. Everyone talks about communication with employees, but communication with your spouse is equally – if not more – important. 
  3. Prioritize faith and family over farming. The order is good. People need to feel valued. Your checkbook and your time often show what you value.
  4. Determine who is next. Anytime multiple families are involved in an operation, contingencies are needed that address the potential of the four D’s. 

Your problem can be solved, but there, no doubt, will be some financial loss.

For those reading this, hopefully the focus is on avoiding an issue like this rather than having this be your story.

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