I’ve discussed farm divorces before in this blog and while there are some unique issues during farm divorces, there are some general principles regarding the division of farm land (also real property). The basic principle is that each spouse is entitled to ½ of the assets in the divorce as well as ½ of the debt. So if a you and your spouse own 100 acres of farmland valued at $5,000 per acre with $75,000 still owed on the land the total equity to divide would be $425,000. Seems simple enough? Well there are a few sticky points:
- What is the “real” value of the land?
- Is the loan against it just for the land or are other assets used as collateral?
- Was the acreage purchased at fair market value or did a family member sell it a discount?
What is the “real Value of the land
This sound simple doesn’t it? Unfortunately, it can be pretty tricky to divide farmland. The reason is that since most farmers in Minnesota take operating loans they will often encumber not only the house, the tractors (we call them implements) but more and more the bank is requiring that the actual acreage itself is pledged as collateral on the debt.
Let’s take a look at a simple divorce, a couple owns a house worth $200,000 with a $125,000 mortgage. This means the equity in the house is going to be $75,000, divide that in half and each party should get $37,250. Nice and simple. Now, look at a farmer who owns a modest farm site of 100 acres with an average value of $5000 per acre (the actual valuation of the acreage is a whole separate post!) so the value would be $500k. Now, the complexity comes in when you figure in that Dad sold the land at a discount the family price of $2500 per acre. This creates a claim of non-marital property that must be dealt with.
Now the debt against it may well be over $500,000, but it could be debt rolled into for the new Case IH tractor, the cars, even the home site (usually under separate deed and valuation). If that’s the case how can we figure out the equity in the farm? Short answer is, we can’t. What we do is start working on our software program that values all significant assets, the house, the car, the acreage, the implements, the crops in the dryer, etc, etc.
So, if you’re going through a divorce and your a farmer, the best thing you can do to save money as well as make the divorce go smoother is to start an HONEST list of assets to give to your lawyer. One thing that often comes up in farm divorces is the farmer tends to undervalue his property, this can lead to a lot of needless fighting later on. It’s best to put a real value on the asset sheet and move on.
Thanks for reading, any comments or questions, feel free to email me at firstname.lastname@example.org or call the office.
Law Office, Chtd.