A husband, a wife and their children, all living and working together happily on the family farm. That’s the ideal. But, what about when “love goes wrong” and a divorce looms on the horizon?
In an era when nearly half of all U.S. marriages end in divorce, farm couples are not immune to the kind of marital discord that can mean the end of a marriage. In fact, farmers may be more prone to special stresses that can weigh heavily on the health of a marriage. Long hours, unpredictable weather, uncertain income, living where you work — these are all factors that can add to marital strain. And, while a divorce is difficult for any family to go through, a farming divorce is different in some notable ways from other divorces.
The University of Maryland Extension’s Women in Ag series of presentations held a webinar, “Divorce and Farming,” with presenter Sarah Everhart, who is a senior legal specialist with the Agriculture Law Education Initiative, at the University of Maryland Francis K. Carey School of Law. She gave an overview of the special legal issues surrounding farm divorces and shared suggestions for navigating a farming divorce in a constructive manner. She also emphasized that the webinar was not a substitute for individual legal advice from a lawyer.
Everhart said some of the factors that make farmer divorces especially challenging revolve around the familiar scenario of when a farm has been passed down through a family for generations, making it more than just a piece of real estate — farming is the family’s way of life. Since divorce involves splitting a couple’s assets between the two of them, it’s also troublesome that farming’s assets typically are not very liquid. Instead of dividing up cash, there are real estate, equipment and livestock that may need to be liquidated to accomplish an equalization of assets as part of the divorce. This process is ultimately the job of the court.
Another special impediment in farming divorces has to do with retirement savings. Often, instead of a 401K plan or a pension account, the farm is the retirement for both halves of the couple. There are also things like rental income, insurance policies and possibly an alimony request to be reckoned with.
In the eastern portion of the U.S., Everhart pointed out that most states’ laws make a distinction between “marital property” and “non-marital property” when it comes to determining the equitable distribution of property in a divorce. This is in contrast to states that consider virtually all a couples’ joint and individual assets as “community property.” Marital property is considered to be property, such as land, equipment, etc. — however titled — which was acquired by one or both spouses during their marriage, unless specifically excluded by a valid agreement.
While marital property’s definition is relatively broad, the term non-marital property has a much narrower range. Property acquired by a spouse before the marriage, property acquired by inheritance or gift during the marriage or property specifically excluded by a pre-nuptial agreement define the limits of non-marital property. However, if there is a co-mingling of marital and non-marital assets — such as if a spouse uses an inheritance to buy additional property — there can arise difficulty in differentiating between marital and non-marital assets.
This is where the courts become involved. The court will take numerous variables into consideration in arriving at its equitable distribution determination. Contributions of each partner to the well-being of the family; the value of all property interests; the economic situations of both parties; the circumstances which caused the marital break-up; the duration of the marriage; the ages and physical and mental health of the spouses; how the property was acquired; and the contributions of each party toward any property acquisitions are all factors the court will review.
The court will also consider both marital and non-marital debt. For instance, pre-marital student loan debt would typically be considered as non-marital. Additionally, the court frowns upon either spouse attempting to get rid of assets or lower the value of the assets through incurring debt, or otherwise taking self-serving actions in anticipation of a divorce.
Everhart offered pointers on ways to protect the family farm in a divorce. She noted that, while it’s not very romantic, perhaps the best way of doing this is by having a pre-nuptial agreement prepared by a qualified attorney, stating how assets would be divided in a divorce and which would remain non-marital and not subject to division.
A pre-nuptial agreement needs to be fair in content, meaning it must not be “substantially unconscionable” in giving one party far more than the other. It also needs to be presented to the prospective spouse in a timely way that allows that party ample time to review it and, hopefully, have their own attorney review it, as well. A pre-nuptial agreement will also include a full listing of all assets of both parties.
While pre-nuptial agreements aren’t foolproof, Everhart credits them as a good way to protect pre-marital property. She also offered other suggestions for weathering a potential divorce scenario. For example, it is wise to consider the possibility of divorce in the farm succession planning process. A good way to keep the farm in its family of origin is to limit bequests to blood relatives only and exclude their spouses. Using a trust rather than a will as a vehicle for conveying assets can also be a good plan.
As a practical matter, not relying on just one spouse to handle all the farm’s paperwork and finances is another recommendation from Everhart. She suggests that both parties should keep track of the farm’s documents and take turns handling the paperwork and finances, so both spouses are in the know. This way, if a divorce occurs, neither spouse is at a disadvantage in understanding the marital finances. They are also in a better position to possibly enter into a voluntary division of their marital assets using the services of an attorney and/or a mediator, which will save time and legal fees.
Everhart summed up her presentation on Divorce and Farming in just eight words: “Hope for the best. Plan for the worst.”
For further information about University of Maryland Extension’s Women in Ag webinars, visit http://extension.umd.edu//womeninag/webinars.