Pre-nups, post-nups, and estate planning: agreements that save the farm
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Pre-nups, post-nups, and estate planning: agreements that save the farm

Mind Your Farm Business
on is brought to you
by RBC Royal Bank. Welcome to the Mind Your
Farm Business podcast brought to you by
RBC Royal Bank. I’m Shaun Haney, founder
of also the host of RealAg Radio
on rural radio 147 on SiriusXM. You can find more
episodes of this podcast by going to Today’s topic is difficult. It comes with anger, resentment, and a ton of pain. Yet no one plans for it
because it will never happen to them or their family. We’re talking about divorce,
specifically how to protect your family farm from
divorce and its possible catastrophic impacts on
the family business. Everyone enters a marriage
thinking it will last forever, some last 60 years and
others just six months, but you really never know as the
couple walks down the aisle. With so many marriages
ending in divorce, why do people not
protect their assets and financial interests
ahead of time? Similar to farm succession
it’s because we ignore the probabilities and assume we are
different than the average. What’s at stake could be
your family farm business. Today’s guest is
Anjali Sharma of Davidson & Williams of Lethbridge, Alberta. She’s a lawyer of
matrimonial law at a firm with many agricultural
clients just like you. We’re going to dive into
protecting your family farm from divorce. Hi, Anjali. How are
you doing today? I’m doing really good,
Shaun, how are you? Doing really well. So we’re going to talk today
about divorce on the farm and how to protect the
farm from divorce. I guess I’ll start
off by asking, is there ever a marriage, a new couple that gets together, they get married, is there, is there ever a couple that doesn’t think they’re gonna
stay together forever? Well, I’ve done some pre-nups,
so there are a couple. Okay. Smart ones. Yeah, that’s right. Okay. So we have to, when
we do, you know, when there is a new marriage, the people do have that
sort of that belief. You better have that belief
going into to a marriage that it’s going to last forever. But of course we know
that they don’t. And when couples do split up, it can get messy and that
can impact the farm. So I guess to start off,
you mentioned it: pre-nup. Is that really where
all this begins? It certainly should be. So I think it’s advisable
if you’re trying to protect the farm if you’re
trying to protect, you know, your
future generations wanting to keep it in the
family, things like that. Probably a pre-nup is
a really good idea, sort of going in and that
way both parties have an understanding of, you know,
what assets are in the farm and how to protect those assets. So I think it’s probably the
best advice is if you have a family farm that you’re
wanting to protect, go talk to your lawyer
about getting a pre-nup before you get married. It’s probably a good
thing to find out about. Do you think that if from
your experience that a lot of pre-nups don’t happen or
don’t even get discussed because people are just
scared to bring them up? Yeah, absolutely. Absolutely. People don’t want to
have that conversation. It’s not a comfortable
conversation to have, obviously. You know, if you’re excited
about getting married, you don’t really want to talk
about the prospect of divorce, but you know, it’s I think
realistic to sort of look at. Especially with something
like a farm where, you know, it’s probably been
in the family for some time and that’s something that
you want to protect and it’s something that
everyone’s worked in to have that
conversation, right? You’re the person that
you’re getting married to knows presumably that you
have this ongoing business and so it makes sense
to have that discussion even if it is a little
bit uncomfortable. You might not want to do it the
week before you get married. You probably want to do it a
little bit further out than that if possible. But yeah, it’s
definitely a good idea. And what are some of
those things that fit, that make up pre-nup good? Obviously getting a lawyer
involved is critical, but is there, is there
components that involve the farm that should really,
really be in there? Definitely. So generally speaking, so
the way it’s structured in Canada is that the federal
government controls sort of divorce and marriage, but
each particular province has its own matrimonial
property regimes. So and this also applies to not
just if you’re getting married, but if you’re also going
to be cohabitating in a common law relationship. So similar property rules
can apply depending on which province you’re in. So it’s definitely a good
idea to consult a lawyer about what the rules are in
your particular province. But you wanted sort of
tried to exempt assets. So assets that you bring
into your marriage or relationship, that value as
of the date of marriage or when you started cohabitating, that’s what you’ve brought in. So that’s exempted from
being divided later. But if you have assets
that you acquired together or if those exempted
assets increase in value then a pre-nup can sort of set
down the values of the exempted assets, protect against the
increases that may happen over the course of the
marriage or over the course of the relationship to
protect that from division later should there be a
divorce or separation. So, yeah, it’s good to sort of
know what you’re getting into and what each party has
going into the marriage. Yeah, and I think you
brought up a really, really critical point
here is that there are differences amongst
the provinces. So just because
you’re, you know, if you’re farming, you’re a
dairy farmer in New Brunswick, just because your buddy
in Saskatchewan, his divorce was dealt with
a certain way doesn’t mean that those same rules apply
over in New Brunswick. So you need to make sure
that you’re not going on anecdotal sort of stories. Absolutely, absolutely. And you know, sometimes
couples have tried to sort of have informal
agreements with each other which may not be upheld should
the time come if they do end up going through a divorce
or separation. So it’s pretty critical to sort
of get that advice beforehand. And then let the other
person know what type of assets that you have and
it protects both parties. And then as long as both
people know fully what they’re getting into, both
people have consulted with lawyers, preferably, and
they get an agreement that, you know, at the end of the day, you want it to be upheld, right. So as much, you know,
knowledge that each person has going in and
advice that they get and if it’s formalized in
an agreement with lawyers, that’s the best way
to protect things. So you can going in,
people sort of think that, oh, it’ll be fine. You know, we’ll end up agreeing. We’ve discussed it informally, but, you know, things get
emotional later on and things, people don’t necessarily
uphold their informal agreements
later when things are sort of going south. Yeah. And you know, what? We know in agriculture,
family farm succession deals, there’s a lot of them out
there that just don’t go the way that either
all the parties or one of the parties
involved want them to. And really, divorce can
be really the same way. Is that it if you
go on assumptions and all that other, you know,
it’ll be, it’ll all work out. We’ll deal with it later. Don’t worry. You’re probably getting in
a bind that you’re really, really gonna regret. Yeah. Absolutely. And I know farmers like
to make handshake deals and things like that and
have a lot of trust. But you know, I think if
especially if it’s a family farm that you want
to protect it, you want to leave it
for your children, things like that. It’s always better just
sort of get that advice beforehand and that
way everyone knows what would happen
just in case, right? And everyone’s protected. The other thing I would
mention is you know, if the farm is a corporation
and you’re letting the other spouse into the corporation
through shares or things like that, that’s also a
place where maybe after marriage that might happen where each party would
want to also get advice. So, you know, if you’re
let’s say the wife who gets shares in the farm
corporation and just sort of signs off on resolutions
every year doesn’t really know quite what loans
or things are going on. You know, you probably want
to make sure if you’re a shareholder director that
you know what’s going on with the business
side of things and, and you’re getting that advice
before you’re signing off on resolutions or loans
or things like that. Cause you could be on
the hook there as well. We’re going to get right
back to my discussion with Anjali Sharma of
Davidson & Williams right after this message
from our sponsor. This episode of Mind Your
Farm Business podcast is brought to you by RBC. While there is no way to
eliminate all business risks you’ll face, creating a sound
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of the more common ones and give your business a leg up. The agriculture account
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farm up for success. Visit to
find an ag specialist near you. Okay, let’s do a
little bit of a, let’s do a bit of a
like a case scenario sort of based on
what you just said. So a father and daughter
are farming together and daughter gets married and
everything seems like it’s going fine and actually her
husband is helping out on the farm and he’s a welcome
part of the family. Is it a smart thing? Is it good practice for
them to issue shares to that son-in-law? Is that, is that really
protecting your farm against divorce or what do you
think about that? I think it’s going to depend
on whether or not that family, you know, let’s say the
father wants to get out of the business and
transfer everything over. And you know, then
the son-in-law is, you know, taking care of it
and they’re going to have to wanna to leave those shares
to their children later. That might be something that
they want to consider doing and letting him into
the corporation. But you know, they might not
want to do that if they kind of want to keep it in the
family cause there’s a sister or someone else that’s
also helping out. I think it’s going to
be very fact specific. So I think if that’s the case, then again, you want to get
that advice in place just to make sure that if that is
something that’s going to happen that, you know,
you have at least like a shareholders’ agreement
in place that, again, everyone knows what
they’re getting into. Cause that’s going to be the
best thing to protect them. You could also look at things
like a family trust as well. So let’s say for example the dad wants to leave it to the
sister and the other siblings. In that case, they might
want to put that into a trust for the family to go to
the children perhaps, right. So that might then get back
into an exempted assets. So there’s different ways
to sort of set it up. It’s just going to depend on what everyone wants to happen. And then that sort of goes
back to making sure you’re getting that advice in place
from lawyers as well as accountants or any through
tax implications that could arise as well. And is it really a case of
protecting yourself from the worst case scenario,
even though you’re obviously hopeful that the worst case
scenario does not happen, but– Absolutely. Okay. Yeah. Which is difficult. Absolutely. That’s hard. Yeah. Because it’s- you know,
going through a divorce is not an easy process
by any means. And so if you have sort of
these agreements in place beforehand, it can sort of
smooth that transition. And then everyone sort of knows what’s going to happen, right. And it sort of just helps
later to facilitate the divorce or separation and
yeah, it’s worst case scenario. A lot of these types of
agreements will also deal with, you know, what happens
if someone dies or what happens if, you know,
you have children and how are you going to deal
with support issues? So there’s a lot of things
that can be accompanist in these types of agreements
beforehand so that things a little bit can be smoother
a little bit later when people aren’t as agreeable. Yeah. Well, and you know, I think a
lot of times when we think about this, we have this
topic that we’re talking about here, divorce on the farm. A lot of times we pick
on the son-in-law and we pick on the
daughter-in-law. But a scenario that can
develop that it’s out there. I know of a scenario
where this happened, where it’s actually mom
and dad that get divorced at an older age and the havoc
that that can create in a family farm business when
there’s generations working below them, that has to
be considered as well. Yeah, absolutely. Absolutely. So that gets back
to things like, you know, is mom on title? You know, maybe they got
married at the time where, you know, a lot of
times, you know, the father inherited it from
his father and they got married and never added mom
on to the land or property and they don’t have any
agreements in place. So yeah, it can
get rather messy. Especially if mom’s been making, you know, contributions
to running the farm, but she’s, you know, always
relied on the dad to you know provide and hasn’t
really made those inquiries into the status of the
farm or the business or what loans she might
be on, things like that. So definitely, then you’re
looking at things like estate planning for how do we
keep the farm with the kids, what parcels are
the kids farming, things like that. So yeah, it can get
rather tricky. And definitely, again, going
back to getting advice and then getting in that case
of separation agreement in place hopefully to protect
everyone and then getting estate planning in place and
wills and things like that. Yeah, it can get
rather complicated. But I think it’s a good point. It kind of all ties
together, right? It’s not just about a pre-nup, it’s not like this little
isolated little island. It’s about a series of
things that tie together that to be honest, I think a
lot of not just farm families, but a lot of family
businesses in general kind of ignore because they’re really, really difficult
conversations that involve family members and
not necessarily, you know, employer to employee. And so when emotions involved
and the family blood, it’s easier to avoid than,
than really discuss. Now we’ve talked a lot about, we sort of focus
at the beginning kind of on the pre-nup. Say we’ve missed
that part and we’re, you know, we’re…
I don’t know, I’m making up numbers,
10 to 15, 20, 25 years into the marriage. Is there things
that we should do like if we’ve kind
of missed that boat, are we kinda… is
the ship sailed? Nope. So, you can get a
post-nuptial agreement. It’s the same thing. It’s just sort of planning
out what would happen if there was a divorce or
separation or a death. So you can also do that as a
part of estate planning as well. So you can set up
things like a trust. So let’s say they’ve been
married for 10 years, they have minor children
and they want to set up the assets so that the children
will inherit at a future date. That can be done in a couple of
different ways through wills or through setting up
like an express trust that can also have tax deferral
consequences or advantages. So there are definitely
things that you can do. So the ongoing conversation,
if there’s any new things that arise, a new property
that’s being purchased or significant assets are being
divested or you decided to incorporate, then again, you
can get that advice in place. Particularly if let’s
say, you know, a corporation is being entered
into with a third party. So one of the spouses is
a shareholder in another corporation and then
later there’s a divorce. The spouse might have some
right to that which might upset the other shareholders. So they might want to
give some consideration when they enter into a
shareholder agreement to what would happen in
case of a divorce. So yeah, there’s significant
changes that are happening during the marriage. Again, get that advice in place, find out how to protect that. What would happen in a case
of a separation or divorce? Or if you’re just wanting
to do estate planning, it’s always good to sort of
consult when there’s a major change in your
assets or business. Yeah. You mentioned handshake deals
before and they’re very… we’ve actually done
an episode here on the Mind Your Farm
Business podcast all about how to avoid the handshake. Yes. But I would imagine that
there’s a few deals that are done to where it’s…
I would call it the kind of the
napkin agreement, which is not that
much farther past the handshake where things
are sketched on a napkin and everybody thinks it’s solid, maybe not as solid as you
would think at first signing something like that. Yeah. Cause I mean, I think
people get excited and they want to enter
into an agreement and you know, there’s a level
of trust involved, right. And you know, you don’t
necessarily want to do anything that might
shake that up, right. But you know, it’s always good to sort
of look at the future, like you said, worst
case scenario, right. You know, lawyers
and accountants I think always tried to plan
for worst case scenario. And you know, what would
happen if like I said, there’s a death or there’s
divorce or there’s some other sort of unanticipated
consequences that maybe you should’ve thought
about at the time, right. So yeah, it’s always
good to get that advice in place beforehand. It saves a lot of work
and a lot of money. You know, to spend a
little bit more up front, it’s definitely worth it
to get that in place. Yeah, I think a lot of
people justify their avoidance by saying, you know, my farm is different or
my marriage is going to be different and it can
work out of course, and everybody hopes it does, but they can also go the
other direction as well. Anjali, this has been a
fantastic discussion. I really appreciate
you providing us with the information here on the Mind Your Farm
Business podcast. I look forward to talking
to you again soon. All right. Thank you so much, Shaun. I appreciate it. The decision to get
married is a heavy one. Even heavier or the consequences if it does not work out. Anyone in the family farm
unit can go through it and the ripple effects
are long in nature if some work is not
done to protect the family farm business. Not many of you listening
likely have a pre-nuptial agreement or even a post-nup. Many people in society do not. I hope that you enjoyed
today’s discussion. If you have any feedback,
please email me at [email protected]
or call the RealAgriculture line at (855) 776-6147. I would love to hear
your stories of dealing with divorce and the
farm and how you did or didn’t protect
the farm business. You can find more episodes
of Mind Your Farm Business at mindyourfarm Thanks to RBC Royal Bank. And until next time, keep on
minding your farm business.

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