Avoiding Disputes: Even on the Family Farm

Throughout the years the family farm has been a part of our agricultural landscape, owned and operated by the family and passed down through the generations.  These traditional farms don’t rely on contracts like large corporately owned farms, nor do they worry themselves much about liability.  The head of the family was a sole proprietor when it came to a farming business.  Once children grew old enough to take over they then helped with farm management until it was passed down to the next generation

Legal Informality In Agricultural Business:

The family farm was subject to a different tax code and requirements that the average working person, and the managed the accounting themselves.  It is vital that work with an agricultural attorney who understands these tax codes.  The IRS strictly enforces the rules and regulations surrounding farming operations.  While farmers tend to be more informal in their accounting processes, the IRS isn’t.  Managing a farm leaves you with very little time to devote to paperwork so let an attorney takes this burden off your hands.

The importance of a partnership agreement:

There are no legal requirements forcing you to turn your farm into a company and if you choose to work with family or a neighbor, as is often the case, there is nothing forcing you to put together a partnership agreement but you should.  Without a formally recognized partnership agreement, should there ever be a dispute you may not appreciate how the courts will rule on your case.  However an agricultural lawyer can put together an agreement that outlines the roles and responsibilities of everyone involved.

A case study in what happens without an agreement:

In this case, a father and his son ran a farm as a company. The son bought a neighboring farm and registered in his own name, from a company account with money to make the purchase, he later replaced. When the father died suddenly without a will, other family members argued that the neighboring farm had belonged to the company and that half of it should go to the father to be divided among his heirs

The court ruled that because the money used, was initially through a company account, it was assumed that the property was bought to add to the existing business, even if it was registered in the child’s name. If there were clear records indicating that money was lent to the child, the court would have reached a different decision. Following this decision, the son lost part of the neighboring farm. The message is…you need to work with a lawyer even when it is family.

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