It is important to consider the risk of divorce when planning for the continuation and succession of a family farm.
The most common type of planning involves signing a prenuptial or antenuptial agreement before marriage. The marrying parties would execute a valid agreement that discloses their assets, income and liabilities. Generally, this agreement states which assets, income and liabilities will remain separate after marriage, and which will become joint or marital. This agreement also states how the assets will be distributed in the event of divorce, and how the assets will be distributed upon death.
The agreement should be negotiated and fair. Each party should have the opportunity to review the terms with an attorney of their choice. It is important that the parties be advised on their rights, so they can understand how the agreement differs from those rights.
Discussion of a prenuptial agreement should take place well in advance of the marriage date. It is important to consider all the factors of this decision — including the financial, relational and spiritual. It will be best to find out soon in the process how the parties feel about this so they can best determine how to proceed. If the prenuptial agreement is not a good option for the couple, then the parties have time to seek out other options such as gifting, trusts and buy-sell agreements, which may provide the protections they are looking for.
Include remarriage terms
Clients may also address the event of their surviving spouse’s remarriage in the design of their estate plan. This planning sets forth terms limiting their surviving spouse’s rights to their trust assets in the event of a remarriage. Essentially these terms state that in the event of a remarriage, the surviving spouse would need a prenuptial agreement that protected the deceased spouse’s intended distribution of the trust assets; ,otherwise the surviving spouse would lose access to those assets. This same language can also be required of children before a marriage, but very few clients take this step. Rather, most clients prefer to use protective trusts for the assets they give their children.
If farming as a business entity, the owners can establish a buy-sell agreement. In this agreement, they can state what would happen to an owner’s interest in the event of divorce. Often the agreement will provide that the other owners must agree to the transfer of ownership interest. The agreement may also state that the other owners or the entity have the option to buy out the divorcing owner’s interest, and explain the terms for this buyout.
Balzarini is an attorney at law with Miller Legal Strategic Planning Centers, P.A. Email your questions and comments to him at [email protected].