Please Don’t Sell the Family Farm

Perhaps you’ve heard this phrase: “Sell the family farm.”  The Indiana legislature has just made that more likely.

A common estate planning technique is for mom and dad to “leave the family farm” in separate, equal shares to their children, who can then sell their shares to another or pass them to their children.  Of course, this technique does not only apply to the “family farm.”

Where there are siblings (brothers and sisters) holding the family farm, or any other real or personal property, as tenants in common, a sale of that property can be legally forced by filing for partition.  It only takes one individual to ask for partition.  Thus, where two or more siblings “own the family farm,” only one needs to ask the court for partition to force a sale.  The majority of siblings may want to continue to own “the family farm,” but one disinterested or otherwise motivated family member can force the sale against the interests of the majority.

The Indiana legislature recently repealed the partition statutes (Indiana Code § 32-17-4-3 through Indiana Code § 32-17-4-22).  These repealed statutes provided in part for the appointment of three individual commissioners who are disinterested landowners in the county to recommend whether the land can be divided fairly to separate the ownership interests and a court trial to determine whether or not the property can be divided without damages to the owners or sold as a whole.

Effective July 1, 2012, the Indiana legislature added a new section to the Indiana partition statute – Indiana Code § 32-17-4-2.5.  This section provides that a court shall refer the matter to mediation no later than 45 days after the court has acquired jurisdiction over the parties.  This section provides that if the parties cannot reach an agreement at mediation, then the court must sell the property by public auction or by agreement of the parties no later than 30 days after the mediator files his/her mediation report.

Leverage, under this revised statute, is given to the minority member to force a sale at public auction.  In other words, a minority family member can move for partition, disagree regarding any family agreement, force the sale of the “family farm,” and have it sold as quickly as 45 to 75 days.

With this risk of a quick sale at auction, families must carefully consider their estate planning.  The “fairness” for parents to leave their real (or personal) property to children to hold equally and separately (tenants in common) is compelling.  Yet, the ramifications of this new partition statute must be considered.  If the goal is to keep the “family farm” in the family, harder decisions may need to be made regarding who is going to be the true “farmer” and which children have no real interest in the property.  If not, an unhappy brother or sister may force the sale of a sibling’s livelihood.

At Kahn, Dees, Donovan & Kahn, we represent families in partition and other trust/estate litigation disputes.  We also offer families estate planning ideas and encourage a discussion of these and many other estate planning issues.  For questions about partition and other trust/estate litigation disputes, contact attorney Brian Williams, or a member of the firm’s Estate Planning & Probate Administration team.

Author: Brian Williams