Can you pass on farm property to your kids without losing it if they get divorced?
No parent wants to think about the possibility that their child’s marriage might fail. However, it may be necessary to think about it to avoid having much of the family’s farm legacy lost in a messy divorce.
A pre-nuptial agreement may be the first thing that comes to mind to deal with such a situation. However, while a pre-nuptial agreement may be an effective legal mechanism, there are other more subtle ways to protect farm property.
Ontario’s Family Law Act sets out rules governing separation and divorce in this province. Among them are rules for the division of matrimonial property – which includes farm property. Two rules stand out:
1. The net value of property (other than the matrimonial home) owned by a spouse on the date of marriage is excluded from the division of family property; and
2. Property (other than a matrimonial home) that was acquired by way of a gift or inheritance after the date of the marriage is also excluded from the division of family property.
In the most basic terms, if farm property is transferred (by any method – sold, gifted or inherited) to a son or daughter before marriage, then the net value of it, on the date of marriage, would not be split between the spouses in the event of a divorce. Alternatively, if farm property is transferred to a son or daughter by way of a gift or inheritance after marriage, then that property (regardless of any change in value) would not be split between the spouses in the event of a divorce.
There are pros and cons to relying on either scenario, which a person should have explained to them by a knowledgeable lawyer. There are also many exceptions to these basic principles (i.e. the matrimonial home, or value of it, is not protected by these rules), and ways that the protection of farm assets may be undermined or lost, which, again, a person should have explained to them by a knowledgeable lawyer.
One advantage of relying on these rules is that a parent can have some control (albeit limited) over the protection of farm assets – by insisting on how and when property is transferred to their children. Reliance on these rule may also help avoid potential acrimony associated with insisting on a prenuptial agreement.
As is always the case in any farm transfer, proper planning is important. It is important to remember that such planning should not stop with tax advice – legal advice is just as important.