Tensions of Farm Succession

Farm succession is more than the technical details of legally transferring the ownership of assets and tax management. Farm succession can be messy because it involves people rather than just assets, and people have different emotions, different values, and different goals. These emotions, values, and goals can cause tensions among farm and family members. Powering through the technical process of succession without acknowledging and addressing the tensions in your situation will give you a plan, but how long will it last when the tensions build to a breaking point? It is normal to have tensions around farm succession. As noted, it can be emotional, and for many, change is something to be avoided. Normalizing the fact that there will be tensions and taking the time to consider your farm’s tensions can set the farm on the path to a more resilient succession plan. It’s better to have awkward and necessary conversations now rather than later. The Five Areas of Farm Tensions In 2009, researchers in Pennsylvania interviewed farm family members who were in various stages of succession planning. From these interviews, they concluded that there were five tensions present in these conversations. Similar tensions were found from focus group research conducted in 2017 in Wisconsin. While your farm may have unique tensions, there are five common areas/topics where tensions arise around farm succession: Finances Communication Inheritance Change Control Finances In the Pennsylvania study, this was referred to as “profit versus affordability.” In Wisconsin it was described as the competing financial needs between the generations. Both research studies noted that increasing land values coupled with tighter profit margins make this one of the more common tensions. When farms are managed by one person, couple, or generation, financial recordkeeping and analysis may focus on tax document preparation and numbers to support loan requests. However, when bringing another person, family, or generation into consideration, more comprehensive financial analysis provides a place for necessary conversations around the past performance of the business and the capacity of the farm to support more people. If analysis of the past 3 to 5 years indicates the farm has adequate capacity and performance, the questions around this area of tension tend to fall into these two potentially conflicting categories: What does the owner generation need/want for the assets? What can the successor generation and the farm afford to pay for the assets? Communication In both the Pennsylvania and Wisconsin studies, farmers recognized the need for clear conversations around succession planning. Unfortunately, many farms rely instead on assumptions. In Wisconsin, the word used most to describe tension about communication was “transparency,” especially around income/finances, roles/responsibilities, and decision-making.If the succession is between parent and child, both generations must work to break any unhelpful communication patterns. The other tension under the communication category was “starting the conversation.” A surprising number of farm families do not have intentional conversations when a family member returns to the farm to work. At a minimum, farm members should discuss the job description, the compensation, and the possible pathways to eventual management and ownership for the incoming generation. These conversations happen more often when the incoming person is not related! Inheritance This tension concerns the following question: Should the distribution of assets at the owner generation’s deaths be equal or fair among the heirs? This is one of the most common questions farms must answer. Inheritance can symbolize love, trust, and competence. If most of the owner generation’s net worth is in farm assets that are needed for the farm to continue, equal distribution can put the future of the business at risk if the non-farming heirs want the value of the assets immediately. Recent research from Oklahoma State University (OSU) used a representative farm model to analyze options to transfer ownership to an on-farm heir while considering inheritance distribution with an off-farm heir. The OSU research indicates that unequal distributions improve the likelihood of transferring the business and of the business reaching basic success milestones over a 20-year period. Equal distribution of farm assets stems from the desire to treat all children fairly, not considering that the children’s contributions to the business can vary after they become adults. This is an example of family goals and values influencing business decisions to the detriment of the long-term viability of the farm. And this fairness value can be in direct conflict with another common farm family value: legacy. Change The Pennsylvania researchers described this as “progress versus continuity.” The owner generation sees no reason to make changes to the operation (continuity), and the successor generation wants to put their education, experience, and management skills to work in the hopes of making a positive mark on the business (progress). The challenge in this tension is that the owner generation may take the suggested changes from the successor generation as judgment. The owner generation hears: “You’ve been doing it wrong all these years.” While in some cases that is exactly what the successor generation means, many more times it is not the intention. The successor generation is eager to show their value and see the business move forward. If the owner generation has gotten the farm to a place where a succession plan can be considered, they’ve made some right decisions along the way. The successor generation would be wise to consider this and acknowledge this fact. On the other hand, the decisions the owner generation made were made in the past, and now the successor generation may have a completely different “set of facts,” such as the economy, markets, and environmental regulations. The farm and family members may want to define continuity less in the way things get done, but more broadly in the facts that the farm continues to be a farm, or the land continues to be in family ownership, if those are important goals they’ve identified. And progress may be the path to reaching those goals. Control This was described as “retaining versus letting go of control” in the Pennsylvania study. Insisting on keeping

Every Family and Farm Has a Story

Why is the story important? Do you remember sitting at a family gathering and hearing family members share stories from their childhood, or your grandfather sharing stories when you visited? Different times of the year bring different memories to mind. Some are repeated often—sometimes even to the point of being annoying—until the person isn’t there to share them anymore. Then their value soars.The details of the stories are necessary to understand. History shared, especially the items talked about the least, often play crucial roles in people’s actions and the farm’s history because, for farm families, they are intertwined. But I’m not family Farmers have an incredibly close tie to their farm. After all, the farm is where both family and the farm business happen. Transitioning a farm outside of the family can feel a bit like betraying one’s family and the sweat equity everyone put into it. If you’re not family, it’s important for you to understand the history of the farm and learn all you are able to about the roots of the farm you want to take over. You are the only one who can assure the farm family that the history of the farm will not be lost at the signing of a sales agreement. At this crossroads, you must realize that you must invest in the history of the farm, as well as the land and buildings, in order to have a successful farm transition. The True Impact The tough stuff is the events that, over the years, have created the largest underlying impact on a farm. They may be the issues that broke down communication or simply remained unaddressed. Example: A neighbor showing up with a shoebox full of cash when grandfather was about to lose the farm. The Samaritan’s name was, as promised, never shared. This act created an unspoken burden through the generations to ensure the farm was not lost.   The impact of unaddressed traumatic events may burden a farm for generations. Uncovering the root problem may be the toughest task. If someone is showing a response that’s bigger than the issue, most likely there is a deeper wound to address. Trauma Across Generations Here is just one example of how trauma can impact generations: A traumatic death of a child during birthIn those days counseling was not available. The only recognition was flowers lovingly placed on the baby’s grave every Memorial Day. A small marker was placed years later when money was available, or when the family realized the need to publicly acknowledge the loss. The couple lost one child; they could not bear losing another. Thus, years later when their only child, a son, shared an incredible job opportunity, he was told if he left the farm he could never come back. Realistically, they would have welcomed him back with open arms, but instead they gave a tough front. The young man stayed on the farm and lived his life with underlying regret and anger because of it. That anger sometimes spilled over when farm projects became challenging—hurtful words were spewed at family members, young and old, who were assisting with the project. Those words rang in young ones’ ears and breathed discouragement into others. All of this could have been avoided if the situation had been dealt with honestly years earlier. It’s hard to fathom that they forbade the son to accept the job, because it’s a well-known fact that experience on other farms is an asset and an important step prior to returning to the family farm. It offers the opportunity to see how others do things, to learn new skills, to advance experiences and knowledge, and to bring new options home. Likely the couple made the decision from a place of raw emotion that continued to sting deeply, instead of thinking of it from a business perspective. The son lived with regret his entire life. Learning From the Stories The stories are as important as the farm being in the family 100 years, but much harder to learn about. Understanding the challenges previous generations faced creates opportunities for empathy, healing, and ensuring the hurts are laid to rest and negative cycles broken. This results in opportunities for new beginnings and a smoother transition. Work through the traumatic events While it’s most important for the family to overcome negative experiences for the health of the farm, anyone involved with the farm needs to recognize, address, and overcome them as well. Recognizing and addressing the deep challenges faced by the previous generation—and then laying them to rest and moving forward—is very healing, not only to the farm family but the farm business too. It gives people permission to lay the baggage of previous generations down and not continue to carry it forward. This is a very healthy step for all involved and will lighten everyone’s load. It removes potential bumps in the road ahead and provides a clean slate for the new farmers. Celebrate the Positive Impact Grandchildren love the stories shared by others about their grandparents: stories about animals they purchased from them, or stories of farm visits. A plethora of people are still in the ag industry today who remember a positive start made possible by one family farm. These are the stories that are most beneficial to pass down through generations—or transition to the new farm owner outside the family. The positive stories give reason to celebrate and encourage the next generation of farm stewards to develop a mission, not only for the farm but also for people who work with the farm. The new farm owner doesn’t have to be family to contribute to the community, but they will gain community support if they do. Most important, the contribution must be the right fit for this generation of farm stewards. The Next Chapter None of us know how the next chapter in the farm’s history will turn out. Our role is to give the farm the best opportunity for success—whether within the family or

The Messy Middle of Farm Succession Planning

Introduction How would you describe your attitude or emotions to the words “farm succession planning”? Excited, hopeful, motivated? Or maybe the words that come to mind are apprehensive, stressed, or conflicted. Perhaps at different times all these words can be used to describe your attitude about farm succession. Transferring the assets and management of the farm business is what I call “Big Change”. It can be exciting to think about the business continuing to the next generation and even good things are stressful when there is Big Change connected to it. Big Change Big Change like farm succession is not going to happen overnight and it will involve making space for new goals, visions, and ideas. I’ve worked with farm and family members when they have first recognized the need to talk about succession. They are motivated and excited to start– and maybe they are even a little bit relieved that they are starting the conversation – because it may have felt like succession planning was “the elephant in the room”. Then the farm members get to that place where they face some tension points – it might be the financial capacity of the business, or the balance of inheritance needs to be discussed. Or it might be that the successor generation wants to bring their management ideas and opinions to the table.  This is where farm members start feeling a bit unsettled. They can’t keep moving forward on a linear path to an immediate decision. But now the elephant is not only in the room, but it is asking for a seat at the table! The Messy Middle or Groan Zone Feeling unsettled and perhaps not having a clear direction of what to do next brings us to the Messy Middle. The Messy Middle is a term I first learned about from a Brené Brown podcast, Brené on Day 2, as the term for the middle of any experience where things get rocky, or we hit a wall. She compares it to a three-day conference.  Day One is all excitement about new ideas, concepts, and new possibilities. Day Two is the “oh, crap, how is this going to work in reality” day.  But we need Day Two to get to Day Three.   When thinking about this in regards to group decision-making, Sam Kaner and his colleagues call it the “Groan Zone” in their book, Facilitator’s Guide to Participatory Decision-Making. This is the time after differing ideas and opinions are voiced and there isn’t a clear path on how to take the best pieces of each idea and synthesize it into a decision or a plan. On the left side of the image is where the issue, problem, perhaps succession discussion, or opportunity comes to light. The blue dots are familiar ideas or opinions. And maybe you have others who are now a part of the discussion, and they are bringing new ideas and opinions to the table as well. In this drawing these new ideas are the pink asterisks. These differing ideas lead the group into what Kaner calls the “Groan Zone” and Brown calls “The Messy Middle”. The Messy Middle sounds like something nobody wants to go through, right? This is the point where farms might stall-out and perhaps drop the discussion. It’s where you may want to stay in your comfort zone and continue making decisions and managing the farm in the familiar patterns of the past. I want to challenge you to stick with the process and sit with the uncomfortableness. A Facilitator Can Help You may need a facilitator or someone outside the business and family to help you move through the Messy Middle – which is where deeper conversations and mutual understanding of the needs of the farm and family members can be discovered. Mutual understanding can lead you out of the Messy Middle into the right side of the drawing, where the best of all the ideas and opinions are examined to decide which one or combination of them will best address the issue or stressor you’re trying to address – and when that’s done, the fun part of planning and acting on decisions can happen. But if you try to avoid the Messy Middle, you risk leaving great ideas on the table unexamined and you risk leaving key people out of the decision-making process. Farms that skip over this part of the decision-making process may be able to move forward for a while. However, ignoring it won’t make the issue go away. In succession planning, skipping over it may mean that you’ve made promises or entered a business arrangement that you now wished you hadn’t. Skipping the Messy Middle may drop you into a bigger and more expensive mess you have to unwind. The Main Points are when you get to the Messy Middle: Don’t panic! And now you have a name for that unsettled feeling so you can acknowledge it and dig in a little deeper. Resist the urge to go back to the left side and pick an idea because that feels comfortable. Resist the urge to skip over the Messy Middle – and think you’re fast-forwarding the process – you need the Messy Middle! While the Messy Middle and the Groan Zone have slightly different contexts, they both emphasize the importance of embracing discomfort and uncertainty as a necessary part of any process of change or decision-making. Both Brown and Kaner argue that by acknowledging and working through these challenging phases, we can ultimately become more resilient and better equipped to handle the challenges that come our way. Are you interested in some of the resources referenced in this article? Contact PA Farm Link today to request your copy of “Cultivating Your Farm’s Future” workbook and companion guide. This workbook contains invaluable tools to help with your farm’s succession planning. Reach out to PA Farm Link today!

Sweat Equity and Farming

Introduction A part of the Cultivating Your Farm’s Future program In farming, sweat equity is a term that is loosely used to define how established farmers use payment of a commodity or capital assets to replace some of the cash wages for employees. Sweat equity is also the term sometimes used to compensate a successor for years of labor and management that helped build the owner generation’s wealth. It can be used to justify gifting personal, titled property, or giving a discounted price when the property is eventually sold to the successor. When considering labor compensation in forms other than money, the goal of both the employer and employee should be analyzed to ensure it is an appropriate compensation package. Sweat Equity used for Commodity wages Forms of commodity payments include: Immediately consumable meat, milk, eggs or other food items in place of a cash wage A commodity of grain, milk or animals that will be sold and eventually converted to cash Breeding stock that can either remain in the employer’s herd or used to start the employee’s own herd Transfer of ownership or a percent interest of ownership in a capital farm asset If the employee’s goal is to learn more about the farm business and gain management skills, commodity payments can provide a way to allow him/her to make management decisions on a smaller scale. Sweat equity payments in the form of commodities can help the employee gain experience in the management and marketing of the commodity. One example would be the payment of grain allowing the employee to make decisions of when and where to market that grain. Market livestock can provide additional skill development as the employee makes management decisions to raise the livestock to market weight. From the employer’s perspective, skills development can translate into a better employee who can be given more responsibilities. In addition to skill development, the employer may not have the cash flow to completely compensate the employee, but can provide the commodity as part of the wage package. Finally, there can be income tax savings if a portion of the wage is in the form of a commodity. However, if this is the main or only goal, the parties should consider if the tax savings is large enough to warrant the work required to document and adhere to the income tax rules. If the employee’s goal is to eventually manage their own herd, payments in breeding stock may be a viable option. Again, this provides the opportunity for him/her to develop management skills while the farm manages cash outlays for labor. With this option it is important to consider where the animals will be housed. In the case of a dairy, if animals stays in the original herd, but are owned by the employee how will feed and other ownership costs be paid and how will milk income be distributed? The employer must consider the long-term implications of the employee’s animals remaining in the herd and taking facility space from the owner’s herd. The employer should determine if they can manage the loss of the income? Or does the owner need to calculate overhead costs and charge this expense to the employee? Sweat Equity used for Succession When the goal is to slowly transfer business assets to the next generation, sweat equity can provide the transfer of assets or percent interest in assets to the successor. For example, breeding stock can be transferred to the successor over time allowing them to own a significant portion of the herd. This mode of equity transfer can be facilitated by forming a business entity that owns farm assets as shares or interest. These shares or interest can then be transferred to the successor. This option, when clearly outlined in a farm succession plan, can provide the successor generation a guarantee that the assets will be transferred. This guarantee removes the speculation that surrounds a verbal promise of “Someday, this will all be yours”. Sweat equity can also relieve the pressure of cash flow on the operation if the successor can manage their living expenses with a smaller paycheck. One thing to consider with this option is how much of the assets can and should be transferred in this way. Is the owner generation dependent on these assets for retirement? If the answer to this question is yes, how much of the assets can be provided in trade for labor? How much needs to be retained by the owner or be sold to the next generation for cash to fund retirement needs? Valuing Sweat Equity Sweat equity is as valuable as cash equity and should have a one-to-one conversion rate. Therefore, it is important to correctly value the items being given as sweat equity. Some commodities have a worldwide market and their value can be more easily determined by this market value. Other commodities produced on farm such as cattle are not as easy to value. While market can be used to determine an animals worth, this may be undervalued if the animal can command a premium above what they could be harvested for. For example, cattle with high value phenotypes or genetics can sell for much higher than market value. It is important to have production records on these animals including milk, fat and protein to determine the value of these animals. In addition, rolling herd average and classification scores can be useful marketing tools. In addition, cattle can be appraised to determine their value. This is most commonly done for insurance purposes but also can help determine a baseline value of your herd. To assess the animal’s worth, the appraiser will evaluate the quality of the animal. This can include a comparison of your animals to animals of similar quality that have recently sold. An appraiser may use a calculation to determine fair market value. This calculation will be specific to the type of cattle, cow or replacement. Milk cow appraisal includes future milk production, future calf production and the current

Ten Things to Consider for Succession Planning

Introduction Business succession planning doesn’t happen on its own. Producers must intentionally focus on the planning and work with a team of professionals such as a tax specialist, attorney, financial planner, and lender. Family businesses, particularly family farms, often face the challenge of balancing family values with business goals. Families are generally focused on emotions and stability, while businesses thrive on performance and adaptability. This inherent conflict requires careful consideration to ensure a smooth transition between generations. Farmers can make their time with professionals more productive by preparing beforehand. Here are ten key steps to consider when preparing for succession planning. A facilitator can help keep everyone on track and accountable when working through these steps. 1. Organize Your Information What does each generation own and owe? How do they own it? Gather all depreciation schedules, insurance policies, retirement plans, savings, and other assets. 2. Develop and Discuss Intentions/Priorities Is it important for the business to continue? Does the successor generation want to provide a dignified retirement for the owner generation? Does the owner generation value keeping the land in the family name? Do the successors’ priorities match with the owners’ priorities? 3. Evaluate Your Communication Skills/Patterns Are you a good listener? Has the owner generation had a conversation with family about succession? Has unresolved conflict been named and addressed? Is there communication among partners? 4. Analyze the Farm Business Financials Does everyone know the liquidity and solvency position of the farm? Has it been profitable? What are the cash flows? Can the farm support additional families, retirement assets, or inheritance assets? 5. Estimate Family Living Needs What are the current needs? What are the future income sources and expense estimates? How much is needed from business assets for family living costs? 6. Develop a Management Transition Plan Is the owner generation ready to relinquish some decisions and responsibilities? Is the successor generation prepared to take on those responsibilities? Has there been a specific conversation about transitioning management? Is the owner generation emotionally prepared to let go? 7. Create a Timeline While timelines can’t be set in stone, they provide a framework and target dates for transferring short-term, intermediate, and long-term assets. Include management transfer milestones. Put these plans in writing. 8. Develop and Discuss Estate Plans Do both generations have wills or estate plans? Have guardians been nominated for minor children? Does everyone have Power of Attorney for Finance and Power of Attorney for Health Care in place? 9. Consider Fair vs. Equal Inheritance Has the successor contributed to the owner’s business with a plan to compensate them with farm assets at a later date? Is this plan documented? Does continuing the farm take precedence over an equal distribution of assets? 10. Evaluate Long-Term Care Needs and Options Has the owner generation researched long-term care options? Does everyone understand Medicaid eligibility and recovery rules? Can a plan to age in place be developed? Additional Resources: “Cultivating Your Farm’s Future” workbook and companion guide. This workbook contains invaluable tools to help with your farm’s succession planning. “Cultivating Continuity“ the companion guide to Cultivating Your Farm’s Future features additional resources. Authors

Fair vs. Equal Strategies for Asset Distribution

Recent farm succession research by UW-Madison Division of Extension educators indicates that the division of assets for inheritance is a common tension around farm succession planning. This study found that 54% of participants felt stress over how assets were divided. The participants’ comments regarding this stress were grouped into five main categories, business risk, sibling harmony, emotions, personal risk, and treating assets strictly as inheritance and not as business assets. In some cases, the tension can be so great that the owner generation avoids making a decision until it’s too late which may allow their assets to default to the state’s plan, which typically mandates dividing the assets equally between the children. If the goal is to continue the farm to the next generation, dividing the assets equally may jeopardize that. Oklahoma State University has created a statistical model that compares various transition strategies and their probabilities of success. The results demonstrate that the most common farm succession strategy of dividing the assets equally among all heirs has the lowest success rate. Farms employing this strategy normally do not continue to the next generation 1. Making decisions and following through with them can alleviate the successor’s worry about their financial ability to purchase the farm assets. Having a succession plan allows the successor to prepare for ownership of the farm assets, whether it is through inheritance, purchase, lifetime gifting, or a combination of the three. Solidifying the owner generation’s goals and priorities for their retirement needs and estate plan, allows them to better communicate these goals to the heirs and/or business successors. Service providers, such as attorneys, accountants or other professionals can use these goals to tailor their suggestions and strategies to better fit the needs of the family. An overview of the following tools and strategies is provided to help owners and successors become familiar with these options before meeting with planning professionals. Familiarity with these tools and strategies will give owners and successors a better understanding of the strategies as they discuss them with professionals. Farm families may want to consider a combination of these strategies to fit their unique asset distribution needs. Unequal Gifts of Essential Business Property Owners of the farm business may choose to transfer the essential assets of the business to the on-farm heir. These assets may include livestock, machinery and equipment, tools, and buildings that are critical to the business. For a business to survive, these things may need to be passed on to the business heir even if this means the business heir inherits a larger percentage of the parent’s assets. Estate planning tools (Wills, Trusts, and ownership of property) Wills are a set of instructions for the distribution of assets at the time of death. Wills are easily changed, and assets distributed through a will are subject to probate. Probate is the court process of validating the will. The instructions in the will can distribute assets however the owner deems appropriate and can set parameters for the purchase of assets between heirs. Parameters could include a set price, a formula for a price, and an interest rate if a purchase is done over time like a land contract. The instructions may also include that assets be available for the on-farm heir to rent for a set period of time. A trust is a legal entity that has the power to hold assets. Trustees and beneficiaries need to be identified for each trust that is created. A set of instructions would be developed outlining who makes decisions for the assets and who receives the assets or the benefits generated by the assets after the owners pass. Assets in a trust are not subject to probate, unlike assets that are transferred by a will or by the state’s default plan. Depending on the type of trust, the date the trust was implemented, and the trustees and beneficiaries chosen, a trust may provide some protection against Medicaid Recovery in Wisconsin. Any assets moved to a trust would still be subject to the Medicaid programs “look back” period or may still be considered the owners’ assets, despite being held in the trust name. For more information about Medicaid Recovery visit: https://www.dhs.wisconsin.gov/medicaid/erp.htm and https://www.pa.gov/en/agencies/dhs/resources/medicaid/medicaid-general-eligibility.html The way the property is owned or titled may have a bearing on how it is distributed. For example, if property is owned as tenancy in common, and one of the owners dies, the deceased’s interest is transferred to his/her heirs. Joint tenancy exists when two or more persons own the entire property with the right of survivorship. This means that at the death of one joint tenant, his or her interest passes directly to the surviving joint tenant(s). It does not become a part of the decedent’s probate estate. Therefore, it cannot be controlled by his or her will and is not subject to creditors’ claims against the estate. The last surviving joint tenant becomes the sole owner of the property2. If one is unsure of how property is titled and owned, a consult with an attorney can be helpful. Business Entities as Transfer Vehicles Corporations, limited liability companies (LLCs), and limited partnerships may be an option to transfer business assets to the on-farm heirs. The assets in the entity could be transferred to the successor over time allowing the owner and successor to co-own the entity. The transfer of ownership could be achieved by selling shares of the entity in the case of corporations or interest or units in the case of LLCs. The owner could choose to gift ownership of shares, interests, or units to the successor. The purchasing or gifting of shares, interests, or units guarantees the essential business assets are in the appropriate hands. The entity can also have language in the operating agreement or legal documents as to how the owners’ shares or interest are to be transferred at death. It is important to consult with an accountant or tax professional regarding gifting and sales transactions that may have tax consequences. Purchasing Agreements There are many different types of

Divorce and the Farm

When discussing succession and estate planning, we usually focus on ensuring the farm passes on to the next generation before or after the current operator’s death. Although the hope is that every marriage is successful and lasts until the spouse’s death, divorce can happen and create issues for a succession plan. A divorce may cause one of the parties to the succession plan to have to buy out a divorcing spouse if issues are not resolved before the marriage or during the marriage’s life. Succession planning can also be useful if a party to the plan gets divorced. Tools such as prenuptial agreements and postnuptial agreements can help prevent issues that could arise regarding how assets are distributed during a divorce and impact a farm succession plan.  Marital v. Non-Marital Assets In Pennsylvania, marital assets are subject to equitable distribution in the event of a divorce. It’s important to note that the law requires equitable distribution, not equal distribution. Equitable distribution can often become equal, but it may not always.  With equitable distribution, the court can consider several factors, including the length of the marriage, the opportunities for the parties for future wealth acquisitions, the standard of living during the marriage, tax implications, and more.  Those factors can be found in 23 Pa. Cons. Stat. § 3502(a).  To determine what assets would be subject to equitable distribution, we would need to determine if the property was acquired during the marriage or the increase in value of property acquired before the marriage. Property that would be excluded would be gifts, except for gifts between spouses, property taken under a will to one party, and property acquired after the divorce is filed.  Let’s consider a scenario where Taylor and Travis each owned 100 acres of farmland before marriage. Each farm is worth $600,000. After their marriage, they invest in a dairy farm and significantly improve their farmland. The improvements raise the farms’ value to $800,000. In this case, the dairy farm and any increase in value, here $200,000/farm, to their respective 100 acres would be considered marital property, as they were acquired or improved during the marriage.  At the same time, both are still part of respective family farming operations.  What can Taylor and Travis do to prevent loss in their respective farmland, or can one continue on the dairy farm in case of a divorce? Prenuptial and Postnuptial Agreements The first thing that should be considered is a prenuptial agreement. A prenuptial agreement is a legal agreement between the two parties before marriage regarding handling assets brought into the marriage.  This agreement is a good way to limit risks to family farmland or other farm assets before marriage and prevent issues in distributing those assets in the event of a divorce.  These agreements can be structured in ways that allow the spouse to be integrated more and more into the existing agricultural operation as certain milestones are hit, potentially the length of the marriage. To be valid in Pennsylvania, both parties must enter the prenuptial agreement voluntarily before the marriage.  At the same time, the parties need to have adequate knowledge of the property and financial obligations of the other party. It’s crucial that both parties seek legal representation when negotiating these agreements. This ensures that all aspects are considered and the agreement is fair and comprehensive. At the same time, the parties can voluntarily waive in writing any right to disclosures of the property and financial disclosures of the other party. What if Taylor and Travis did not consider a prenuptial agreement before marriage?  Pennsylvania law allows for the couple to consider a postnuptial agreement after marriage.  A postnuptial agreement is a legal agreement between spouses on what assets remain outside of marital property and what assets are considered marital assets.  The agreement operates similarly to a prenuptial agreement but is entered into after marriage.  In the case of a postnuptial agreement, the parties should talk with legal counsel to ensure the document is valid when drafted. Postnuptial agreements can often be used as couples mature together.  For example, if Taylor and Travis married in their early 20s and entered a prenuptial agreement that considered assets they brought into the marriage, those assets and goals may have changed over time as they entered their 40s.  A postnuptial agreement that modifies the prenuptial agreement would allow the couple to contemplate what has changed over the marriage.   Both documents can also be integrated into farm succession plans that contemplate an heir taking over an operation. For example, if Taylor is going to take over an existing farm from her family, the prenuptial agreement would be a way to ensure that limited issues will arise if she gets divorced. At the same time, if Travis becomes active on the farm and helps the farm grow over time, the family may want to consider a postnuptial agreement to modify the prenuptial agreement to consider how the situation has changed.

Forgive Generously

I’ve been married 36 years and am still learning what makes a good marriage. Recently while traveling I listened to a podcast, Bob Lepine author of Build a Stronger Marriage was sharing insights. He shared late speaker and author Gary Smalley’s most important marriage advice, learn how to resolve conflict and forgive. In fact, be a generous forgiver. I realized it was not only good guidance for marriage but for everyone especially farm families. Conflict Working together in hectic and stressful farming situations can create conflict and misunderstanding for the most loving farm families. Sprinkle in an unexpected financial challenge or equipment breakdown and the calmest person will be agitated. A child psychologist once told us, they act out more at home because they feel most comfortable there. I’ve found it to be true for people of all ages. It’s not all beautiful sunsets and pretty green hayfields on a farm there are disagreements too. How they are handled makes a difference. Assumptions Often disagreements and grudges are a result of an assumption. Assumptions are not necessarily true. It is best to ask the person instead of presuming you know what they are thinking or blaming an action on the person. Sadly, I’ve witnessed farm families broken apart by assumptions lacking facts to prove validity. One or more people are “sure” they know who caused an issue, but there’s no way to prove or disprove it. The accused said they didn’t do it, but still the grudge wears on causing separation in the family. Resolve Conflict Gary Smalley didn’t say if conflict occurs, he said learn how to resolve conflict. He knew arguments were a given in marriage and it’s also a given in farm families. Since it’s a given, the best option is for farm families to learn how to talk through the issues and resolve the conflict. Compromise may be required in order to come to an agreement. Forgive Generously The term indicates a need to forgive freely, not begrudgingly. In fact, the biblical example of 70×7 comes to my mind and I am guessing Gary Smalley was thinking of that too. Forgiving generously requires us to completely lay down the wrong or the assumption, etc. and never pick it back up. If we do, we need to consciously let it go again, as many times as it takes. Family Held to a Higher Standard Those who forgive strangers ought to also eagerly forgive family members. Afterall we are called to forgive both. Many farm families refuse to acknowledge direct relatives for various reasons. The same people will agree generous forgiveness is a great marriage tip and confirm the biblical 70×7 example. Farm families are not exempt. It appears the expectation of family is perfection and unfortunately people aren’t perfect, and things happen. Family is too precious. Don’t give up the ability to communicate and cherish blood relatives because of hurt feelings, conflict, or old issues. Begin the conversation and the healing today, swallow your pride and take a step forward to mend broken relationships and begin the forgiveness process. 

Every Family and Farm Have a Story

Why Is the Story Important? Remember sitting at a family gathering and hearing family members share stories from their childhood or grandpa sharing stories when you visited. Different times of the year brought different memories to mind. Some repeated often, even to the point of being annoying. Until the person was not there to share them anymore then the value of those stories soared. At that point, the details were lost if not written down and questions came to mind that could no longer be answered. The details a necessary piece of the farm and family puzzle. History, especially items talked about the least, played a crucial role in people’s actions and possibly the farm’s history because for farm families it’s all intertwined. Understanding the history helps us address and work through the tough stuff as well as embrace the victories. But I’m Not Family Farmers have an incredible close tie to their farm. After all, the farm is where both family and farm have happened. Transitioning a farm outside of the family can feel a bit like betraying one’s family and the sweat equity everyone who came before them put into it. Therefore, even if you’re not family, it’s important for you to embrace the topic and learn all you are able to about the roots of the farm you want to take over. You are the only one who can ensure the farmer and farm family that the history of the farm will not be lost at the signing of a sales agreement. It’s at this crossroad that you realize you must invest in the history of the farm as well as the land and buildings in order to have a successful farm transition. An Impact to Work Through The tough stuff is likely the things that had the largest unspoken impact on a farm. A very traumatic death of a child during birth in days when counseling was not available. The only recognition flowers lovingly placed on the baby’s grave every Memorial Day. A small marker placed on the grave in later years when money was available or maybe when the farmers realized the need to publicly acknowledge the loss. The couple lost one child; they could not bear losing another. Thus, when their only child, a son, shared an incredible job opportunity with a large farm he was told if he left the family farm he could never return. Realistically they would have welcomed him back with open arms but instead they gave a tough front, and that young man lived his life with an underlying regret and anger issue because of it. Understanding the challenges previous generations faced create opportunities for empathy, healing and ensuring the hurts are laid to rest and negative cycles broken. Celebrate the Positive Impact Grandchildren loved the stories shared by others about their grandparents. The animals they purchased from them and stories of farm visits. A plethora of the people still in the ag industry today, remembering a positive start made possible by one family farm. The positive stories give reason to celebrate and encourage the next generation of farm stewards to develop a mission not only for the farm but also a plan to positively impact people in a way that best fits the next generation. Skipping family and farm stories leaves a missing piece in the transition puzzle.,