Divorce Risks Can Be A Farm Biz-Buster

A farmer with two children who want to farm asks the Profit Planner panel how to minimize farm business risks.

Published on: Jun 18, 2013

Here's the question put to American Agriculturist's Profit Planner panel: My parents and I own a dairy farm that also has a contract poultry enterprise. My son and daughter both want to join the business. But how do we minimize risks if one or both were to get divorced?

And here's the boiled-down response from the four panelists:

Mike Evanish (consultant and business services manager of Pennsylvania Farm Bureau's Members' Service Corp.): "Risk of losing 25% of the farm is far greater today. No parent wants to give the fruits of a lifetime of work to their child's ex-spouse.

This is where an experienced farm business management consultant can be invaluable. Before considering any business relationship, you must evaluate everyone's spending and leisure desires. From my experience, the younger generation, in many cases, is less likely to be willing to sacrifice today for the benefit of tomorrow, and needs to be considered.

Divorce Risks Can Be A Farm Biz-Buster
Divorce Risks Can Be A Farm Biz-Buster

Goals matter. At one of the meetings, everyone must have the opportunity to state their future goals.

With that information in hand about the spouses, it's time to determine what will be in the business. Who will be in the business? How will control (management) work?

Draft appropriate documents. At this point, I like to meet separately with each couple. I've even met with spouses separately. It's interesting how much the conversations change when Mom and Dad or the other spouse aren't around. In one meeting, a bad attitude can be hidden. Chances are lessened with multiple meetings.

It's easy to say "My spouse doesn't care about the business or my working 15 hours a day." It's quite another for it to be true.

Dale Johnson (University of Maryland Extension farm management specialist): First, minimize the risks of divorce. This sounds "preachy". That's exactly how it sounded when my father said it to me:

* Marry someone with similar religious beliefs and values. This is the greatest insurance of a successful marriage.

* Marry someone who understands farming – it's benefits and trials.

~~~PAGE_BREAK_HERE~~~

* Marry someone in the same economic class. A couple with the same monetary expectations will find it easier to work through difficulties.

* During courtship, use your brain. After marriage, use your heart. This often gets turned around..

This all sounds very analytical and unromantic. But it'll greatly reduce the risk that you'll need that prenuptial agreement – that you should also get.

George Mueller (dairy farmer from Clifton Springs, N.Y.): My first suggestion is that future farm partners work off the farm for a significant period – three years is optimum.

Next, don't give them too much ownership in the beginning. Expect them to work hard, save money and earn their way into the partnership.

At Willow Bend, we pay a good wage to next-generation partners. But their share of the business is limited to how many shares (capital account) they've been able to purchase with their savings (and gifts from their parents.

Go slow in turning over ownership. Limit your gifting to your own children, and the threat of a damaging divorce settlement should be minimal.

Glenn Rogers (University of Vermont Extension professor emeritus and ag consultant): Ideally, you'd have a pre-nuptial agreement in place well in advance of the marriage. It doesn't happen often, even though 50% of first marriages and roughly 70% of second and third marriages end in divorce.

A post-nuptial agreement is another preventive. They aren't universally accepted in all states. And like pre-nuptials, they can be challenged and invalidated.

You also need to know if your state is a community-property state or an equitable-distribution state. So it's imperative that you seek qualified legal help.

Partnership, limited liability corporation and corporation shareholder agreements probably can help. They must include language such as prohibiting sale of shares without the approval of other shareholders or a waiver of right to claim ownership in the business.

Your strategy should also involve estate planning, as many ag businesses survive from one generation to the next. Divorces happen, and can impact your operation's financial stability. So do lots of talking, thinking and long-range planning.

Panelists' full responses will be in July's American Agriculturist issue. Got a question of your own? Send it to "Profit Planners," American Agriculturist, 5227B Baltimore Pike, Littlestown, PA 17340. Or e-mail it to jvogel@farmprogress.com. All are submitted to our panel without identification.