What happens to the family farm when the family breaks up?

Posted on March 20, 2023 in Family Law by Kimberly D. Visram

When a farming couple separates, the breakdown of the spousal relationship can also have a significant impact on the family farm. Family farms are often businesses in which both spouses, and often children or other family members, play an integral part. The issues that arise upon a separation or divorce when a family farm exists, in terms of both property and finances, can present new challenges and specific considerations that may not exist in a non-farming family.

If either spouse insists on a strict application of the applicable Saskatchewan legislation, the long-term viability of the farm may be put at risk. Not only does this likely impact the ability to generate income for the spouses, but it also potentially jeopardizes the ability to preserve the farm for transfer to the next generation.  In contrast, there are alternative methods for resolving family property issues on a separation that allow for greater flexibility, and help to ensure that the farm is viable on a go-forward basis.

Generally, the Saskatchewan Family Property Act, aims to equalize family property such that each spouse leaves the spousal relationship with property of equal value. If one party wishes to maintain an existing farming operation, pursuant to the legislation likely a sizable equalization payment of cash will be owed to the departing spouse. Such payment is often required in a relatively short period of time. This may result in the spouse who retains the farm having to take on significant debt, or sell off portions of the farm to generate income to pay the departing spouse. If the spouse is unable to come up with the money to pay out the departing spouse, the Court can order the sale of all or part of the farm, potentially at a significant discount, which ultimately results in a significant loss of family wealth for both spouses and the next generation.  

The Court’s task in a family property division case is to determine what family property exists, assign a fair market value and distribute the property, or its value, equally. The Court’s task is not to ensure existing farm operations can continue without difficulty or to ensure the farm remains operational for future generations.

As the Court’s role is more rigid in nature, options for alternative dispute resolution, such as mediation, may be attractive to separating farm families. Mediation is an out of court process that is designed to allow the spouses to discuss, collaborate and ideally, agree on their own terms pertaining to the division of their property.

Through mediation, separating spouses can thoroughly canvas the current and future operations of the farm. For example, spouses may agree to delay the equalization or sharing of the value of the family farm until a later date when the farm sells (or another key period of time). Or the spouses may agree that ultimately the farm shall be transferred to the next generation, so the current value is not allocated to either spouse. In either case, pending such transfer the spouses may agree on terms to ensure both spouses continue to be supported financially from the farm, notwithstanding their spousal separation or divorce. Such an arrangement can ensure that both spouses’ needs are met post separation, but the farm is also preserved for the next generation.

Out of court processes such as mediation also permit a more thorough consideration of the ebb and flow that often exists within a farming operation. Revenue generated from a farm may vary from year to year and depending on the timing of a separation, the income level of the spouses as reflected on financial statements or income tax returns at the time of separation may not be an accurate representation of what income is available for support purposes. Mediation offers an environment where the spouses can reality test the possible outcomes; as opposed to the court process that rarely considers the true effects of the implementation of the court order long term.

Mediation also provides the ability to bring to the table third parties who may also have an interest in the outcome. For example, if the couple has children involved in the farm, those children may be impacted by what happens to the family farm and wish to have a voice in the process. Utilizing an out of court process can permit those discussions to occur in an amicable setting to try to minimize the impact of the spousal separation or divorce on the farm and the family as a whole. This process also allows spouses to utilize joint experts or advisors, such as accountants, corporate lawyers, business valuators and financial planners to come up with strategic and creative plans to maximize available cash for both spouses and minimize the impact of the spousal separation on the farm. Finally, mediation offers the family farm an element of privacy and confidentiality that does not exist in court. Court proceedings are public and often court decisions are reported on the internet. These decisions often provide specific details not only about the spouses, their children and the relationship breakdown, but also specific details pertaining to the assets owned by the parties, the value of such assets and any debts the spouses may have. Keeping matters out of court allows spouses to maintain confidentiality regarding their separation and their farming operations, so they may transition through their separation in private.

Kimberly D. Visram
500 – 123 2nd Avenue South, Saskatoon, SK S7K 7E6
Telephone: 306-244-0132
Email: kvisram@shtb-law.com
Facebook: https://www.facebook.com/KimberlyVisramLegal/

This article is provided for general informational purposes only and does not constitute legal or other professional advice.

This article was originally published in The Western Producer on May 14, 2020.