The modern farm can create enormous stress on the family: drought, flood, bad harvest, equipment breakdown, debt and more. What happens when one partner no longer copes with the stress? “D-I-V-O-R-C-E,” as Tammy Wynette sang in 1968.
That song is every bit as relevant now as it was then.
One minor difference is that divorce for the modern farm couple does more than break up a marriage. In most cases, it also breaks up a hefty sized corporation that might be worth millions of dollars.
Who gets the equipment? Who gets the land? Who gets the livestock? Who gets the yard and buildings? Livestock can be dispersed, but a farm can’t function if the equipment is auctioned off.
Read Also
Vintage power on display at Saskatchewan tractor pull
At the Ag in Motion farm show held earlier this year near Langham, Sask., a vintage tractor pull event drew pretty significant crowds of show goers, who were mostly farmers.
The law says it’s a 50-50 split. But how do you split a 90-foot drill worth half a million dollars?
Who takes over payments on the debt? What happens to the yard and land if it originated with the husband’s family or the wife’s family? And who runs the business if the split happens during seeding, spraying, harvest or shipping grain?
Divorce on the farm truly is a bigger issue than who gets the car, the kids and the border collie.
Conjecture says that expanding farms create more stress. Leasing or buying new land means leasing or buying more equipment, and that leads to a shortage of operators. Both partners in the marriage spend more time and more personal energy managing the business. This common goal can lead to a closer relationship.
Or it can lead to bickering, nagging, more time away from the home, drinking, spousal abuse and ultimately appointments with the lawyer and accountant. And suicide in some cases.
Specialists we interviewed for this story say a trip to marriage counselling might avoid those trips to lawyers and accountants.
MNP southern Saskatchewan regional manager Regan Exner says most farms are now organized as a family farm corporation with husband and wife as shareholders. There may be sub-companies such as a land company or a hog company. The vast majority of family wealth is tied up in the corporations.
“When there’s a breakdown in their personal relationship, there’s also a breakdown in their working relationship, so this impacts the function of the farm,” says Exner, who has more than 20 years of experience in the field.
In most situations, one partner continues farming while the other partner leaves, thus prompting some sort of buyout. That’s where things get complicated, because the corporation is designed to have all components in place and fully functional. Writing a cheque for the amount of half the total assets isn’t always easy.
“The partner who remains on the farm will take over all the shares in the corporation, and then use the equity in the assets to take on more debt to do a buyout of the spouse who’s leaving. It might be one large cheque for the total amount, but often it’s structured over a period of four or five years, provided there’s security in place to protect the spouse who’s not going to continue farming. Generally speaking, it’s the wife who’s leaving the farm, but not always.”
Sometimes there’s not enough equity in the farm to allow the farming spouse to borrow money to meet obligations to the spouse that’s leaving.
Exner says this can lead to a long term arrangement for the remaining spouse to make the payout.
In cases where this is not acceptable to the person leaving, the couple has no choice but to split the net assets down the middle.
“This has led to situations where the partner leaving the farm takes ownership of the land or other assets. But it’s not a good situation. Then they have to worry about leasing the land back to the former spouse or somebody else.
“Cash is king. The legal advice given to the leaving spouse is ‘take cash up front.’ There’s much more risk in stretching the payout.”
“As we’ve seen, a couple bad years can wipe out most of a farm’s equity. You won’t find any lawyer who’ll sign off on a payment over time when there’s inadequate security.
“You have to remember there are tax implications to be factored. Looking at a family property division, both parties need to do this as tax-effectively as possible. They need to keep their independent estates as large as possible. You don’t want to trigger any unnecessary taxes. There are a number of preferential tax treatments available to both spouses, and of course there’s capital gains to consider.”
When crunching the numbers in a farm divorce, it’s not unusual for the partners to discover that their liabilities are greater than the equity. Financial demands of the divorce might force them to liquidate the whole farm. That means it’s time to call the auction house.
Jay Varjassy, regional sales manager at Ritchie Bros. in Regina says not all farm divorces end up at an auction. He estimates half of farm divorces end up in bitter disaster. Either there’s not enough equity or the two partners can’t agree on the dollar amount of the payout. In many cases, financial factors foster more bitterness, stubbornness and revenge.
“If both parties can just step back for a little while and let their lawyers and accountants work through it, they would end up with a more rational financial settlement based on numbers rather than emotions. Emotions create a lot of obstacles that harm both sides.”
Despite what some people believe, a positive aspect is that equipment showing up at an auction because of divorce does not sell for bargain basement prices. An auction serves as a clearing house that establishes fair market value.
“Typically, any kind of equipment dispersal, not just divorce, will bring fair prices if the units are in good shape. Any time a farmer has a complete dispersal, if it has a good smell or feel to it, there’s participation from more bidders.”
He says there are typically discussions with the lien holders. They have to decide if they want to continue the arrangement with the partner who continues farming, or if they’re better off to pull the plug.
“When the spouse that’s leaving the farm wants an immediate payout for half the equity, that person must realize that many of the assets, such as the lineup of equipment, carry a debt. In that situation, the party that’s leaving the farm must also assume half the debt.
“There’s all kinds of debt that might be involved. Land debt, equipment debt, operating loans and the farmyard and buildings themselves. That’s why the couple has to get their lawyers and accountants involved early in the process. They have to comprehend the full financial scenario.”
Varjassy urges divorcing couples to get their audited numbers straight before even considering calling the auctioneer.
