What happens when farmers divorce?

• Author: Proudman, Ken

The inter-generational nature of farms, and the need to keep enough farmland to make the farm viable, pose several unique challenges when families decide to separate.

Farm families often experience the law in unique ways, and divorce is no exception. The inter-generational nature of farms, and the need to keep enough farmland to make the farm viable, pose several unique challenges when families decide to separate.

Last month, I wrote a two-part article about what happens when business owners divorce. Part 1 focused on the different ways in which a spouse is bought out and whether a spouse has a claim against a corporation's assets. Part 2 talked about ways to protect a business, and how child and spousal support are calculated when a parent is self-employed. That general information also applies to farms, which are a type of business. However, there are many other aspects and potential solutions to think about when it comes to farms.

How are spouses bought out of farms?

The usual options to buy out a spouse discussed in What happens when a business owner divorces? Part 1 are a useful starting point. That said, while it is easy to divide money in the bank, it is not so simple when we are talking about a family farm. You may have planned for your children to inherit the farm. The farm might have been in a family for generations. Because farming is only workable when you have enough land, selling land can make it impractical to continue farming. Many farmers tend to be asset-rich but cash-poor. That lack of cash can make it difficult to pay or qualify for a large enough loan to buy the other spouse out. For many traditional families, if the farm does not survive, that might mean the only significant income stream dies. Fortunately, there are a few potential solutions.

One thing to keep in mind is that the law does not always require divorcing spouses to divide assets equally. The spouses also need to consider farm debts, as well as capital gains tax and other adjustments. Often the most impactful adjustment for farms is exemptions. In Alberta, exemptions are credits a divorcing spouse receives for inheritances, gifts, property owned prior to the relationship, personal injury proceeds, or insurance proceeds. Farmland is often inherited, gifted by a spouse's parents, or owned prior to the relationship. The divorcing spouses typically share the increase in equity during the relationship, although not necessarily equally. That means that for a...