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Let’s Put the ‘Business’ into Farm Business Structures Part Two: Marital Breakdown

07/12/2015


In the first part of my series about putting business practices back into family farm businesses, I talked about proper estate planning. Today, I’m going to take a look at marital fractures. One question I’m often asked is, “What if my son goes through a divorce? I don’t want his ex-wife to get half the farm!”

The only way to entirely avoid losing assets in a matrimonial dispute is to remain poor forever. This should not be the goal. The goal should be to ensure assets at risk in such a dispute are truly matrimonial property as opposed to a:

  1. poor quality business arrangement,
  2. early estate gift,
  3. subsidized lifestyle,
  4. tax arrangement, or
  5. some combination of the above.

The possibility of divorce is a sound reason to make certain that, as soon as a child begins showing an interest in being involved in the family farm business, the proper structure is established. The following measures should be taken in order to ensure that no one is unfairly treated in the business arrangement if a marital breakdown does occur:

  1. The division of accrual profits between family members should be properly negotiated and agreed upon by all parties;
  2. Equity accounts should be accurately tracked and made available to all parties involved so that everyone is aware of their own and others’ equity in the business; and
  3. ​Except in rare circumstances, it is not recommended that parents gift equity to their children early.

To learn more about matrimonial property and farmland, contact Dean Klippenstine, CPA, CA, Director, Primary Producers, at 877.790.7990 or [email protected]​, or your local MNP Advisor.