Protect your operation – put it in writing
Discussing prenuptial agreements and other legal formalities might cause some to squirm, but advisers say they’re a good way to help protect the longevity of a farm business.
According to farm financial experts, prenuptial, co-habitation or shareholder agreements, and many other legal arrangements are steps that are worth considering to secure wealth. This particularly applies when new family members or partners are entering the farm business.
Understanding the businesses’ finances, though, is critical to setting up effective safeguards.
Gain financial understanding
Vanessa Stockbrugger, a veteran money expert and owner of Womencents – a financial guidance company based in Alberta – says farm families need to first know where potential risks might arise and respond accordingly.
When putting agreements in place, she says the initiating party must be clear on the purpose for doing so – and inform others about it. Having a good understanding of the entire business situation and not just one aspect (one’s own income, for example) is crucial. That means accounting for details such as asset values, debts and the presence of a will.
“What you’re trying to do is assess the risk of uncertain situations... trying to put some certainty around risk,” Stockbrugger says.
“We work so hard to build wealth; I want Canadians to be intentional about where that money goes. I think this is one piece of that. I don’t think everybody needs these types of agreements in place but it’s important to consider.”
Consider expert advice and jurisdictions
Potential unintended consequences of legal agreements should also be accounted for. Stockbrugger says knowing what political jurisdiction you’re in is important. For example, the details of co-habitation and tax regulations can differ between provinces, as can changes within jurisdictions.
This goes with keeping good counsel. If a legal agreement is being pursued, all parties should have a trusted accountant and lawyer to help navigate it.
According to Joel Bokenfohr, agriculture transition specialist with FCC, it’s good for all parties to have their own independent legal advice.
That doesn’t mean each has to find a different legal or financial expert, though. Bokenfohr says the same person could be consulted, so long as everyone feels they are being represented adequately.
“A bit of time in the legal office now can definitely help down the road,” Bokenfohr says. “If there is a disagreement the process is established.” He adds any legal or financial adviser should be qualified to consult within the jurisdiction in which the farm business operates.
Continue to communicate
Both Stockbrugger and Bokenfohr reiterate the importance of communication. Everyone should know going into any agreement what the purpose is, as well each other’s expectations. This includes those just coming into the family or business, as it helps build trust and alleviate the sense of rules or plans being imposed.
“Tell all parties why it’s happening - no surprises,” Stockbrugger says. “You’re not protecting them by not letting them know.”
Bokenfohr also adds every agreement type has a specific purpose. Each family needs to evaluate which one best fits their business reality and goals.
Legal agreements can protect farm businesses in times of transition and change. Experts say agreements need to be signed with financial realities and individual expectations in mind.
Article by: Matt McIntosh