Prenups can help preserve family farm

Are you marrying into a multigenerational farming operation? Is your nonfarming fiance just learning to appreciate the sweat and commitment that goes into farming? Do you have personal assets coming into a marriage that you want protected in case there are marital issues later? Creating a prenuptial agreement together may be the solution that would best serve all of these situations.

Key Points

Prenuptial agreements can be part of risk management for farm operations.

Setting up the agreement will cost some dollars.

Establishing fair market value for assets helps make agreements fair.

Angela Gloy, Purdue University Extension ag economist, defines a pre-nuptial agreement as a document signed prior to marriage that typically outlines property and financial rights upon death or divorce of a spouse. She says the agreement may cover a broader range of concerns, such as guardianship of children.

Risk management

While many farm families may be leery of involvement of outsiders, including attorneys, in farm finances, Gloy emphasizes prenups should be considered as an important part of a farm’s risk management plan. “Farm business assets tend to be highly illiquid, and in instances of death or divorce, there are certain cash outlays required for settlement,” she says. “If funds aren’t readily available, it is difficult to partition many farm assets, such as equipment or land, and/or the sale of assets takes time.

“So unless farm families have a standing cash reserve, the prenups help by stipulating how property transfers occur at the lowest possible time and dollar cost to the family, personally, and to the farm business.”

In instances where a spouse is married to a shareholder or party to other business agreements, prenups can help disentangle potential conflict between owners’ marital and professional problems, Gloy says. “They can also help avoid the problem of owners not wanting a partner’s former spouse to assume co-ownership,” she says.

Fair market value

Prenups frequently include fair market value of farm assets, according to Becky Linville, a certified public accountant in Terre Haute.

“Most of the time when I’ve seen a prenup, they ask for fair market value of farm assets so farm business assets are known up front,” she explains. “When increases in assets happen after that, they can be subject to division or divorce. You have to know all assets going into marriage and get fair market value from someone who has knowledge in the farm industry.”

Secure someone who does business evaluations, including appraisals from implement dealerships and real estate specialsits, she adds. “Appraisals cost money, but then it helps the attorney write up the prenup. All of this can save you a lot in the end.”

Gloy suggests one way to alleviate the problem of asset value escalation is to update the agreement on a regular schedule, about every two years, and update the prenup to reflect the changes.

“In getting appraisals I often suggest both parties get their own estimates, and the couple average or find a means of addressing any value difference,” she adds. “I also hear folks complaining about having to spend $500 to appraise farmland. Is spending $500 too much to pay to save the risk of losing $2 million of farmland?

“Go with a reputable appraiser with agricultural experience. A team approach of attorney, accountant, insurance agent and others yields an improved plan for the family’s benefit.”

Hayhurst writes from Terre Haute.

Why you need an attorney’s advice

If it sounds like attorneys would be involved in prenups, you’re right. Ag economist Angela Gloy notes in the absence of a prenup, or postnup, the same agreement made after marriage, state laws dictate how property owned by the couple is distributed. Without a prenup, property acquired during the marriage will convey certain rights, including property sale or donation rights, to each spouse.

“Generally, property purchased prior to the marriage reverts back to the initial owner, but not always,” Gloy says. “Further, debt that’s incurred during a marriage may result in partial or equal payment responsibility despite death of a spouse or divorce.”

Andrew Bloch, a family law and ag attorney, Carmel, agrees with Gloy, and advises his clients considering a prenup that Indiana affords parties wide latitude to contract their property rights. “Oftentimes a client is much happier when they participate in crafting of property division than if the division of marital property is left to someone else,” he says. “This is especially true in farm cases where often the farm has been in the family for generations.”


Up for grabs: If you’re in a partnership or corporation and divorce or death plagues a partner, will the farm continue to operate?

This article published in the December, 2011 edition of INDIANA PRAIRIE FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.