Farm business safeguard: The role of a pre-nup in divorce protection

The following fictional case study was created by BDO.

“Are you sure you want to marry a farmer?” It was a question that George asked his fiancé Monique many times. The reason George kept floating the question, asked mostly in jest, stemmed from the history surrounding the family farm.

George’s father Andrew and uncle Guy farmed together. They inherited the farm from their father and were dairy and cash crop producers. George grew up watching the farm grow and saw how well his dad and uncle worked together. From an early age, he knew farming was what he wanted to do. But when George was in his early twenties, Uncle Guy went through some marital issues that ended in divorce.

Divorce challenges farm finances

Settling the divorce was a nightmare and things got nasty between Guy and his wife. It also affected the relationship between Guy and Andrew to the point that they almost ended the working partnership. There was no plan in place to protect the business or assets from a divorce. The corporate ownership structure of the farm meant that everything, including land and quota, was on the table for the divorce settlement.

The financial stress was intense and big decisions had to be made to comply with the settlement and keep the farm afloat. Some land and equipment had to be sold and expansion plans were scaled back.

Pulling money out of the corporation meant tax implications for Guy. It took years before the effects of the divorce were fully processed financially and emotionally.

George and Monique had started dating during that troublesome time and they felt the ripple effect of the divorce. When they finally decided to marry, they were well aware of what a divorce can do to a family business. George’s cousin Angela was also involved in the farm so there would eventually be multiple generations and multiple families involved.

Monique had witnessed the fallout from Uncle Guy’s divorce and respected the discussion, but her parents were concerned that she would be signing away her rights as a partner in the marriage.

Safeguarding the farm business

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