Do Farm Kids Need a Prenup?

January 4, 2016 11:15 AM
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It’s no secret. As land prices, equipment and asset values creep higher, so does the value of the family farm. Today it’s not uncommon for values to be in the six or seven figure range. That’s why one expert says, as kids get married and spouses come on board, it may be time to consider protecting that asset.

The Brooks dairy farm in Waupaca, Wis., is a busy operation and fortunately still running. A difficult family transition forced Ron Brooks to make some tough choices.

“We had to put Zoey in an equity position immediately,” Brooks says. His daughter Zoey and her sisters are now full owners. “To save the farm, I now work for my daughters. My daughters own all the land. It’s in a separate LLC called, ‘Brooks Farms Homestead., LLC’ and to be honest, our succession plan, divorce or no divorce, looks about the same today as it would have no matter what."

Estate planning attorney and legacy expert Polly Dobbs says when marriage happens, it may be time to take the farm off the table with a prenuptial agreement.  

"It’s good planning for anyone, and if the goal is to keep the farm in the blood, a prenuptial agreement can be helpful," says Dobbs of Dobbs Legal Group in Peru, Indiana. "I hear people talk how it’s something that’s reserved for Hollywood (and how a prenuptial agreement) doesn’t belong out here on the family farm or rural America. 'We don’t need that kind of thing.'"

She disagrees. "I say farm kids need prenups."

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Although the question of a prenup is not where most legacy planning conversations start, Dobbs says that’s often where those talks lead.

“A few minutes into our discussion, when I talk about (how if you) ‘leave your farm to your children, and your child gets divorced and part of your farm is now that marital estate and being divided by a judge,' the hackles go up, (and) the red flags go up," she says. "What I find almost immediately, is they want to keep it simple, but keep it in the blood." 

She says there’s only so much that can be done after marriage.

“We can use trusts. We can use LLC, LLP, any kind of entity. We can use transfer restrictions and by-sell agreements, and we can do our best to protect the farm,” said Dobbs. But while that may keep the farm out of the divorce, an ex can still end up with other assets. “But before the wedding, a premarital agreement is contract that can say, ‘Hey, the farm that’s going to rain down upon me from a generation above is going to be different and ought to be treated differently that the wealth we build during our marriage.’ If something goes wrong, the judge can decide,” said Dobbs.

She knows the prenuptial agreements can be a difficult topic. “Some people have very strong feelings than what God brings together in marriage. There should be no legal contract between. I respect that," Dobbs says. "It’s just my job as a lawyer to give advice. I describe it as marriage insurance. You hope you never ever need it. But if you do, it’s in the drawer. It can be very limited in nature."

Ron Brooks says such planning saved the farm. “Two of my daughters are married, and after what we went through with succession planning on my part, we’ve learned that we really need to get in place marital property agreements," Brooks says. "My two non-farm daughters who are married also have non-farming spouses. It’s important to make sure those marital agreements with non-farming spouses are watertight. They seem to understand that,” said Brooks.

Such arrangements are giving the  Brooks family a chance at building a new legacy on their family's farm. “One hundred years from now when there’s 50 decedents, there will still only be four member groups," Brooks says. "Being a part of that member group allows you to decide if you’re a granddaughter or son and wants to work on the farm, that’s your ticket in. It’s not an automatic ticket. Just because your name is Brooks doesn’t make you qualified to operate or be a part of the operation."

Have you considered,or used, prenuptial agreements on your family's farm or ranch? Let us know in the comments

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