I do quite a bit of driving these days. In addition to spending time thinking and listening to National Public Radio news, I occasionally listen to the Dr. Laura Schlessinger show.
Like most talk shows, her show is controversial. Half the time you agree with what she says and the other half you think she fell off the turnip truck one too many times. But agree or disagree, it often makes you appreciate your blessings.
Dr. Laura’s main focus for callers is to cut through the emotional crap surrounding people’s problems and get down to the real issues. Do you or don’t you have a moral and/or legal obligation to do x, y or z.
This week she started promoting a book, “10 Stupid Things Couples Do To Mess Up Their Relationships.” I got to thinking, what if we looked at farms like that? What are the things that we do or don’t do that can sneak up on us and blow a good farm operation right out of the water?
Well, based on more than a few year’s observations, here goes …
1. Enter a partnership agreement without agreeing how to end the partnership.
The only thing you can guarantee when you enter any kind of partnership is that some day it will end. Since you are entering into a partnership, it stands to reason that you like and respect the other party. Sure, it is not an easy thing to talk about, but agreeing on a fair way to divide assets, liabilities and other intangibles is a whole lot easier up front with the original parties happy and healthy than at some later date when the parties may have changed in ways unimaginable at the beginning of the relationship.
Don’t avoid a potentially good partnership rather than talk about how to end it, but face the issues and agree on the details up front. Put them in writing.
2. Hang on to all management and financial control until Junior is responsible, say when he/she is pushing 40.
This seems to happen most frequently in situations where the current manager didn’t get control from their family’s farm until they were 20 years older than they should have been. One of the biggest challenges of any family business is balancing family relationships and professional relationships.
No doubt, the junior partner has to learn and earn the responsibilities, but they need continuous opportunities to learn and earn responsibility and respect.
Will they mess up? Guaranteed, but that is how we learn and grow. Your job as the senior manager is to wisely choose their opportunities to mess up so they don’t seriously jeopardize the farm during that learning curve. It also helps to remember that we all still mess up sometimes. Keeps life interesting.
3. No insurance.
No health insurance, no worker’s compensation insurance, no or not enough farm insurance to replace assets or to cover unforeseen liabilities. Quite a few different things lumped together, but lack of these can all have the same result, a forced sale of the farm, or part of its assets, changing the farm forever – often stopping progress in its tracks.
Too many times I have seen families doing their best to live on low cash farm incomes. The first thing to “go” is health insurance. One accident or illness is all it takes to rack up $100,000+ in medical bills. They can lose the farm, their home and peace of mind.
Ohio has a program to cover children if needed, but parents need to be covered, too.
Never been sick a day in your life? Thank the Lord and still make sure you are covered. Families of any age or size are susceptible to unforeseen illness or injury. I hadn’t seen the inside of a hospital until I was 28 and then racked up a nice new tractor’s worth of medical bills in just over a year. Wouldn’t even want to think about not having had health insurance.
Worker’s compensation insurance is not optional for employees, it is a legal requirement. It will cover not only medical expenses, but a share of lost wages for serious injuries.
The farm family should be sure that their health coverage would cover a farm-related accident. Some policies will not, as the farmer is considered self employed. If no coverage is available, then the family members should be covered under worker’s comp as well their own health insurance plan.
4. No pre-nup.
Talk about a sticky subject. Asking someone to consider or sign a prenuptial agreement ranks right up there with talking about how a partnership will end before it is started or sticking toothpicks under your fingernails.
“I love you, but I can’t endow you with the worldly goods that ensure the continued success of our family’s business.” Sounds cold, but marrying someone doesn’t automatically entitle the in-law to all or part of those assets (See # 5, No Estate Plan).
Small dairy operations today can easily be worth half a million dollars, larger operations involve multi-million dollar investments. Throw in some farm real estate now potentially worth $10,000 an acre and greed can rear its ugly head.
With the divorce rate hovering around the marriage rate, it is just going to be an issue. This is an issue for multiple-family farms and marriages that occur after a farm is up and running.
When two people marry and dedicate years to establishing a farm operation from nothing, a possible divorce can destroy the farm operation when assets have to be divided. A prenuptial agreement could not really address this type of situation.
A prenuptial agreement can go a long way toward protecting an ongoing business and a previous marriage’s children. It does not necessarily preclude child support, a life insurance policy to benefit the new spouse, or a reasonable share of the deceased’s estate to take care of the spouse.
Talk about it, put it in writing and save everyone a lot of grief.
5. No estate plan.
No will + no estate planning = a recipe for a mess. Combine it with a second marriage late in life and Number 4 (no pre-nup) and a disaster is waiting to happen.
Face it folks, we are all going to die, whether we care to deal with the fact or not. You can make it easy on those left behind by creating a plan that enables them to successfully carry on the business or you can save everyone a lot of grief and sell out now and let everyone find something else to do.
Too many folks have had to leave farming because Dad died after Mom but got married again in the meanwhile. No will meant the better part of the estate went to the stepmother even though the kids had been running the business for the last 15 years. Dad didn’t want to give up financial control, so few assets had been transferred to or bought by the kids. After probate got through with it, there wasn’t enough money to buy out the step-mom and have a viable farm left for the kids who had invested the last 30 years of their lives in the operation for less pay than they could have made elsewhere.
While that case (true, but the far end of the spectrum) resulted from no estate plan, when you do have an estate plan, the children involved in the business need to know how that plan impacts the family’s business.
Next Time: The other five.
(Send comments or questions in care of “Farm and Dairy,” P.O. Box 38, Salem, OH 44460.)