CFAES Give Today
Farm Office

Ohio State University Extension

CFAES

Recent Blog Posts

Stack of law books
By: Peggy Kirk Hall, Wednesday, April 03rd, 2024

I'm often asked how an attorney becomes an "agricultural attorney."  The answer is simple: through knowledge. The best agricultural attorneys I know have two kinds of knowledge: they know agriculture, and they know the laws that affect agriculture.  There are several upcoming events that can help attorneys and law students gain the legal knowledge required to be an agricultural attorney.

The National Agricultural Law Center is currently offering two opportunities for attorneys and law students:

  1. Research Fellowships for Law Students.  NALC employs law students in their second and third years as Research Fellows who help conduct legal research and writing projects. It's an outstanding opportunity to gain research experience and access to the world of agricultural law.  As a partner of the NALC, our OSU Agricultural & Resource Law Program usually has one or two NALC Research Fellows working with us. For the upcoming term, specific research topics for NALC Research Fellows might include but are not limited to food safety and food labeling; environmental regulation of agriculture; agricultural finance and credit; other relevant issues such as agricultural data and technology, land use, farm programs, local and regional food systems and agricultural labor; and legal issues of importance to underserved populations, including BIPOC, such as heirs property, access to credit, environmental law/justice and food system equity. Interested law students must act quickly, as the fellowship applications are due April 5, 2024.  Application information is available on the National Agricultural Law Center website.
  2. Agricultural & Environmental Law Conferences.  NALC is hosting two legal conferences this June:  the Mid-South Agricultural & Environmental Conference in Memphis, Tennessee on June 6-7 and the Western Agricultural & Environmental Law Conference on June 13-14.  We've attended the NALC conferences, and they're excellent learning experiences that cover the breadth of topics we face in agricultural law.  The conferences also allow attendees to interact with speakers and other attorneys from around the country, and law students are welcomed.  Registration is now open for both conferences and is available on the National Agricultural Law Center website.

Two additional opportunities for agricultural attorneys and law students are on the horizon, and include:

  1. The Cultivating Connections Conference.  Our program here at OSU, in partnership with Iowa State University's Center for Agricultural Law and Taxation and the National Agricultural Law Center, is planning to host the second annual Cultivating Connections Conference for attorneys, accountants, appraisers, financial planners, and other professionals interested in farm transition planning.  We welcome law students and other young professionals to join us. The conference will be in Cincinnati, Ohio on August 4 and 5, and registration will soon be available on our Farm Office website.
  2. The AALA Annual Educational Symposium.  The American Agricultural Law Association (AALA) will host its annual conference on November 7- 9 in Memphis, Tennessee.  The AALA also includes law students in its conference, and offers several activities for the students.  The AALA is currently accepting presentation proposals for the conference and registration will open later this Spring on the AALA website.

If you are or want to be in agricultural law, don't miss out on these opportunities to gain the critical knowledge necessary to be an agricultural attorney.  Agriculture needs you!

 

Picture of utility vehicle.
By: Jeffrey K. Lewis, Esq., Thursday, March 28th, 2024

Spring has officially sprung, and so have a few interesting legal updates. In this edition of the Ag Law Harvest we cover aggravated vehicular assault in a farm utility vehicle, "Made in the USA" labels, the Corporate Transparency Act's legal woes, USDA's Dairy Margin Program, and the U.S House Committee on Agriculture's Agricultural Labor Working Group's final report. 

Driver of Farm Utility Vehicle Cannot be Found Guilty of Aggravated Vehicular Assault. 
The Supreme Court of Ohio ruled that a driver of a farm utility vehicle involved in a crash cannot be convicted of a felony for injuring passengers because the vehicle does not meet the definition of a “motor vehicle” under Ohio’s criminal code. Joshua Fork of Sandusky County crashed his Polaris utility vehicle while driving under the influence at a party in 2020. Two of Fork’s passengers sustained serious injuries as a result of the accident. Fork was convicted of operating a vehicle under the influence (OVI), and two counts of aggravated vehicular assault. Fork did not contest his OVI conviction but did appeal his aggravated vehicular assault conviction to the Sixth District Court of Appeals. The case eventually made its way to the Supreme Court of Ohio. 

In its decision, the Court found that Ohio law has two definitions of “motor vehicle.” One definition applies strictly to traffic laws and the other applies more broadly to Ohio’s “penal laws.” The Court held that the definition of “motor vehicle” that applies to penal laws, such as aggravated vehicular assault, exempts utility vehicles. The Court concluded that because of the utility vehicle exemption and the fact that the utility vehicle’s principal purpose is for farm activities, Fork cannot be found guilty of vehicular aggravated assault. To read more on the Supreme Court’s decision, visit: https://www.courtnewsohio.gov/cases/2024/SCO/0321/230356.asp

USDA Announces Final Rule on “Made in the USA” Labels. 
The U.S. Department of Agriculture (“USDA”) announced the finalization of a rule to align the voluntary “Product of USA” label claim with consumer understanding of what the claim means. The USDA's final "Product of USA" rule permits the voluntary use of the "Product of USA" or "Made in the USA" label claim on meat, poultry, and egg products. However, these labels can only be used if the products are derived from animals that were born, raised, slaughtered, and processed in the United States. The rule aims to prevent misleading U.S. origin labeling, ensuring that consumers receive truthful information about the origins of their food.

Under the final rule, the "Product of USA" or "Made in the USA" label claim will remain voluntary for meat, poultry, and egg products. It will also be eligible for generic label approval, meaning it won't require pre-approval by the USDA's Food Safety and Inspection Service (“FSIS”) before use, but establishments must maintain documentation supporting the claim. Additionally, the rule permits other voluntary U.S. origin claims on these products, provided they include a description on the package of the preparation and processing steps that occurred in the United States upon which the claim is made. 

Corporate Transparency Act Loses First Federal Court Battle. 
As we have previously reported (here), the Corporate Transparency Act (“CTA”) requires certain business entities to file Beneficial Ownership Information (“BOI”) with the Financial Crimes Enforcement Network (“FinCEN”) or face civil and criminal penalties. However, an interesting twist in the CTA saga has occurred. A federal court in Alabama issued an opinion ruling the CTA unconstitutional, concluding that the CTA exceeds the U.S. Constitution’s limits on Congress’s power, and issued an injunction against the U.S. Government from enforcing the CTA against the named plaintiffs in the case.  Therefore, the named plaintiff, Isaac Winkles, and companies for which he is a beneficial owner or applicant, the National Small Business Association, and the approximately 65,000 members of the National Small Business Association are currently not required to report beneficial ownership information to FinCEN. Everyone else must still comply with the CTA and the BOI reporting requirements. 

FinCEN released a statement acknowledging the court’s ruling but emphasized that only the named plaintiffs are excused from reporting beneficial ownership information to FinCEN at this time. On March 11, 2024, the U.S. Government filed a notice of appeal of the lower court’s ruling, hoping to reverse the injunction and the court’s decision. We will continue to monitor the situation and keep you informed of any updates to the CTA and BOI reporting requirements.

USDA Announces 2024 Dairy Margin Coverage Program. 
The U.S. Department of Agriculture (“USDA”) announced that starting February 28, 2024, dairy producers in the United States can enroll in the 2024 Dairy Margin Coverage (“DMC”) program. Enrollment for the 2024 DMC coverage ends on April 29, 2024. 

The USDA's Farm Service Agency (FSA) has made revisions to the DMC regulations to allow eligible dairy operations to make a one-time adjustment to their established production history. This adjustment involves combining previously established supplemental production history with DMC production history for dairy operations that participated in Supplemental Dairy Margin Coverage in previous coverage years. DMC has also been authorized through the calendar year 2024 as per the 2018 Farm Bill extension passed by Congress.

FSA Administrator Zach Ducheneaux encourages producers to enroll in the 2024 DMC program, citing its importance as a risk management tool. The program has proven effective, with over $1.2 billion in Dairy Margin Coverage payments issued to producers in 2023. Ducheneaux highlights the program's affordability, noting that it offers a sense of security and peace of mind to producers.

DMC is a voluntary risk management program that provides protection to dairy producers when the margin between the all-milk price and the average feed price falls below a certain dollar amount selected by the producer. In 2023, DMC payments were triggered in 11 months, including two months where the margin fell below the catastrophic level of $4.00 per hundredweight, marking a significant development for the program.

House Committee Releases Final Report Recommending Changes to H-2A Program. 
On March 7, 2024, the U.S. House Committee on Agriculture’s Agricultural Labor Working Group (“ALWG”) released its final report containing policy recommendations for U.S. agricultural labor. The report includes significant reforms to the H-2A program, many of which, as announced by the ALWG, received unanimous support from the bipartisan working group. The recommended policies encompass creating a single H-2A applicant portal, implementing H-2A wage reforms, establishing a federal heat standard for H-2A workers, and granting year-round industries such as livestock, poultry, dairy, peanuts, sugar beets, sugarcane, and forestry access to the H-2A program.

Three hens in farm field
By: Peggy Kirk Hall, Tuesday, March 26th, 2024

It's time for our annual Small Farm Conference, a day-long educational program for those who live on and operate smaller-scale farms. This year, the conference will be on April 6 on the eastern side of Ohio at the Mid-East Career Technical Center in Senecaville. Our Agricultural & Resource Law Program will teach a "Solar and Wind Leasing" session in the Business Management track.  Other track topics include Horticulture and Produce Production, Livestock, Natural Resources, and The Farm Kitchen. 

Here's the session and speaker line-up for each track:

Track 1:  Horticulture and Produce Production

  • Organic Pest Management - Logan Minter, OSU Extension Specialty Crops Field Specialist
  • Planning for Planting - High Tunnels, Low Tunnels and Gardens - Kacey Gantzer, West Virginia Dept. of Agriculture
  • Common Produce Disease and Management - Frank Becker, OSU Extension Educator
  • Growing Produce with Hydroponics - Tim McDermott, OSU Extension Educator
  • Introduction to Bramble Production - Ryan Slaughter, OSU Extension Educator

Track 2:  Business Management

  • Ohio Landowner/Hunter Access Partnership Program - John Morton, ODNR Wildlife Management Consultant
  • Small Farm Equipment - Frank Becker, OSU Extension Educator
  • Solar and Wind Leasing - Peggy Hall, Attorney, OSU Agricultural & Resource Law Program
  • Budgeting to Make Large Purchases - Jennie Schultice, Farm Credit
  • What Do I Need to Start and Set Up a Business? - David Marrison, OSU Extension Farm Management Field Specialis

Track 3:  Livestock

  • Raising Meat Rabbit - Kim Ray, The Ray Family Farm
  • Pasture Poultry - Tyler and Jessica Radcliff, B&R Farms
  • Outdoors Hands-on Demonstration! Livestock Handling form Large to Small Animals - OSU Field Specialists and The Mid–East Career Technical Center
  • How to Make Goat Milk Soap - Radisson Norman, Bubble Goat Soap Co.

Track 4:  Natural Resources

  • Invasive Plant Species - Carrie Brown, OSUExtension
  • Timber Harvesting and Marketing - Jake Peer, Peer Family Forestry
  • Coyote-Livestock Interactions and Research Efforts - OHcoyote Research Group
  • Basics of Growing Paw Paws - Valerie Libbey, Libbey Farm
  • Products From the Hive - Joan Leary, Products of the Hive

Track 5:  The Farm Kitchen

  • Seed Starting - Carri Jagger, OSU Extension Educator
  • Herb Vinegars: Come to Where the Flavor Is - Kate Shumaker, OSU Extension Educator
  • Cooking With a Slow Cooker or Instant Pot - Misty Harmon, OSU Extension Educator
  • Freeze Drying vs. Dehydrating - Candace Heer and Shari Gallup, OSUExtension Educators
  • Food Preservation Basics - Emily Marrison, OSU Extension Educator

Registration for the conference is $100 and includes lunch, session materials, and a trade show.   Registrations are due March 28, so register now!  To register, visit https://go.osu.edu/2024osusmallfarmconference

Posted In:
Tags: small farm
Comments: 0
By: Robert Moore, Thursday, March 21st, 2024

Legal Groundwork

Think about your key farm advisors. You likely have regular conversations with your agronomist, veterinarian, equipment dealer, and grain buyer throughout the year. But when was the last time you spoke with your insurance agent?  For many farmers, insurance agents fall outside their regular circle of communication. This can be a risky oversight. Here's why regular contact with your insurance agent is crucial:

  • Proactive Protection: Unlike other advisors you might consult reactively for problems, your insurance agent plays a preventative role. They ensure your farm has the right coverage to bounce back from unexpected events.
  • Customized Coverage: Farms are unique operations. A good insurance agent will understand your specific risks and tailor your policy accordingly. This could involve covering unique assets, activities, or environmental concerns.
  • Maximizing Coverage: Insurance policies can be complex. Regularly reviewing your policy with your agent helps ensure you understand your coverage details, including property value limits, replacement options, and liability protection levels.

Take Action Today: Schedule an Insurance Review

Here are some talking points to get the conversation started with your agent:

  • Policy Review:  Go over your current coverage thoroughly. Are all your farm properties and assets listed accurately? Are the listed values up-to-date to reflect true replacement costs?
  • Coverage Gaps: Discuss any unique farm activities or assets that might require additional coverage beyond your current policy.
  • Liability Needs:  Evaluate your current liability coverage. Is it sufficient for your operation?

An Investment in Peace of Mind

An hour or two spent with your insurance agent can make a world of difference in the event of a loss.  They can be your partner in safeguarding your farm's financial future.  Don't wait until a problem arises; take charge today and schedule a comprehensive insurance review.

For more information on farm insurance options, consult the Farm Insurance: Covering Your Assets bulletin available at farmoffice.osu.edu.

Map of the solar eclipse path across Ohio
By: Peggy Kirk Hall, Wednesday, March 20th, 2024

Co-authored with Wayne Dellinger, Extension Educator in Union County and member of the OSU Ag Safety Team.

The upcoming solar eclipse on April 8 is a rare event that could bring a half-million people into the 124-mile eclipse path across Ohio, according to the Ohio Emergency Management Agency.  For months, we’ve been hearing about eclipse issues ranging from eye safety to best viewing locations.  But for farmers and farmland owners within the eclipse viewing area, the solar eclipse raises unique issues and concerns. Should we take steps to secure the farm?   Will it delay our farming activities?  What if we have trespassers or want to invite people to the farm to view the eclipse? 

With the eclipse quickly approaching, now is the time to address the safety and legal questions it creates for the agricultural community.  To provide guidance on these questions, our Agricultural & Resource Law Program partnered with the OSU Ag Safety Team. We offer these five steps farmers and farmland owners can take now to prepare for the solar eclipse:

  1. Secure the farm property. 
  2. Understand trespass laws.
  3. Know responsibilities for invited guests.
  4. Plan ahead for farming activities.
  5. Be prepared to react to an incident.

For each step, we provide explanations of the concerns and issues that might arise, any laws that apply, and actions farmers and farmland owners can take to reduce their safety and legal concerns.  Read the entire article at https://farmoffice.osu.edu/solar-eclipse-2024.

By: Robert Moore, Wednesday, March 13th, 2024

Legal Groundwork

Estate taxes are receiving a lot of attention due to the impending reduction in the federal estate tax exemption in 2026.  If Congress does not extend or make permanent the current estate tax exemption, the exemption in 2026 will be $5.5 million per person plus inflation.  The inflation-adjusted estate tax exemption for 2026 is expected to be between $7 million and $7.5 million.  The current federal estate tax exemption for 2024 is $13.61 per person.

The lower federal estate tax exemption will still be high enough for most people to avoid federal estate taxes.  However, some farmers will see themselves move into the federal estate tax bracket in 2026.  People who will find themselves subject to estate taxes due to the 2026 sunset provisions are exploring strategies to help reduce estate tax liability.

One such strategy that may be considered is gifting.  In some situations, gifting can help reduced estate taxes.  In other situations, it may have little effect and have detrimental effects on income tax strategy.  This article will discuss how gifting may or may not help with estate tax liability and the implications of gifting.

Annual Gifts

One gifting strategy to help reduce estate taxes is using the annual gift exclusion.  As stated above, multiple gifts of up to $18,000 can be made without tax to either party.  The gifts can be money, shares in a business entity, real estate or almost any other kind of asset.  The annual exclusion gift can be an effective strategy for those people who have many potential recipients for the gift and/or may be close to or just over the federal estate tax exemption.  Consider the following example:

Grandma has 10 grandchildren.  She calculates that she will be about $200,000 over the estate tax exemption in 2026.  She gifts each grandchild $18,000 in both 2024 and 2025.  The gifts allow Grandma to gift a total of $360,000. 

This gift allowed Grandma to move back under the estate tax exemption and avoid estate taxes. Neither Grandma nor grandchildren will pay gift taxes on the gift.  As the example shows, using the annual gift exclusion can be an excellent way to reduce or eliminate estate taxes.

The primary limitation to the annual exclusion gift strategy is that it may have limited effect for people who are significantly over the federal estate tax limit.  While $18,000 is not a small amount of money to gift, it may be too small to make much of an impact on estate taxes of higher wealth people.  Let’s continue the previous example with a change of facts:

Grandma’s net worth will be $2,000,000 million over the exemption in 2026. 

Even though Grandma can gift $180,000 each year to her grandchildren, it will take 12 years for Grandma to gift away $2,000,000.  Additionally, her net worth will likely increase each year.  In fact, the increase in net worth may outpace what she is able to gift each year.  While annual gifting will always help reduce potential estate taxes, this strategy may only be moderately helpful for higher wealth people.

Lifetime Credit Gift

Another strategy is to make large gifts more than the $18,000 annual exclusion gift.  As discussed above, large gifts can be made without paying gift tax.  However, the estate tax exemption is reduced by the amount of the gift.  So, making lifetime credit gifts are offset dollar-for-dollar by a reduction in the estate tax exemption.  However, this strategy can still be effective when gifting assets that are expected to appreciate in value.  Gifting these assets keeps the appreciation out of the Giftor’s estate.  Consider the following example:

Grandma owns the Smith Farm that sits next to town.  It is currently valued at $1,000,000. She expects commercial development pressure to cause the value of the Smith Farm to increase to $3,000,000 in the next few years.  Grandma decides to gift the Smith Farm to their grandchildren.

Grandma can gift the Smith Farm without paying gift taxes.  Her federal estate tax exemption will be reduced by $1,000,000.  So, the gift itself does not help her estate tax situation.  However, when the Smith Farm increases in value by $2,000,000, that appreciation in value will be assumed by the grandchildren.  Grandma has essentially been able to gift $3,000,000 out of her estate while only using up $1,000,000 of her estate tax exemption.

This strategy may not be the best strategy for assets that will have no or little appreciation.  For a non-appreciating asset, the gift just comes off the estate tax exemption and does not help the estate tax situation.  Again, large gifts work best with appreciating assets.

Capturing the Higher Lifetime Credit

As stated previously, the current lifetime credit gifting allowance is $13.62 million which will decrease by about one-half in 2026.  So, there is an opportunity to make a very large gift now and capture the large gift allowance before it is reduced.  Consider the following example:

Grandma has a net worth of $20,000,000.  She is concerned she will be over the estate tax exemption limit by $13,000,000 in 2026 resulting in around $5,000,000 of estate taxes.  To avoid these taxes, Grandma gifts $13,620,000 of land to her grandchildren in 2024. 

In this scenario, Grandma is able to gift her entire lifetime credit which reduces her estate tax exemption is to $0.  But, when the estate tax exemption is reduced to $7,000,000 in 2026, there will be no claw back of her gift.  That is, her estate tax exemption will remain at $0 and the IRS will not seek to recoup any of the 2024 gift exceeding $7,000,000.  So, Grandma is able to gift $13,620,000 in 2024 and there is no claw back of the extra $6,620,000 in 2026 when the exemption is reduced.  Grandma’s net worth is reduced to $6,380,000, which will be subject to federal estate taxes, but the gift of $13,620,000 will not.

Obviously, this strategy only works for very high wealth individuals.  The person must have enough assets to gift more than the full exemption amount and still have adequate assets remaining to support themselves.  Most people do not have enough wealth to make this strategy work, but for those that do, it can be very effective.

Gifting Has Negative Tax Consequences

Gifting eliminates the opportunity of stepped-up basis at death.  This important concept of stepped-up tax basis at death is a tremendous financial benefit to the beneficiary receiving the asset from the estate.  Careful consideration should be given to this loss of stepped-up basis before a gifting strategy is implemented.  For more information on gifting and stepped-up basis, see the Gifting Assets Prior to Death publication available at farmoffice.osu.edu.

Seek Legal and Tax Advice

Making gifts, particularly large gifts, have significant legal and tax consequences.  Before implementing a gifting plan, be sure to consult with legal and tax advisors to explore all options and to understand the implications of different strategies.  While gifting may seem like a simple solution to estate taxes, gifting is often complicated and has complex legal and tax consequences that should be carefully considered.

Farm Office Live agenda and speakers for March 15
By: Peggy Kirk Hall, Friday, March 08th, 2024

March is already upon us and we're busy preparing for the March edition of Farm Office Live.  Grab a cup of coffee and join us next Friday morning at 10:00 a.m. for our March webinar.  We're excited to have a few industry professionals on this month for a panel discussion on the latest WASDE report and strategies for 2024 grain marketing.  The full Farm Office Live agenda includes:

  • Second Marriages and Transition Planning -- Robert Moore, Attorney, OSU Agricultural & Resource Law Program
  • The New Rule for Independent Contractors -- Jeff Lewis, Attorney, OSU Income Tax Program
  • Legislative Update -- Peggy Hall, Attorney, OSU Agricultural & Resource Law Program
  • 2024 Crop Input Outlook -- Barry Ward, Leader, Production Business Management
  • Industry Panel -- WASDE and Strategies for Grain Marketing, moderated by Bruce Clevenger, OSU Field Specialist in Farm Management
  • Hot Topics and Upcoming Programs -- David Marrison, Interim Director, Farm Financial Management & Policy Institute

Register for Farm Office Live at no cost through this link.  Can't attend?  We record every Farm Office Live webinar and post the recordings at https://farmoffice.osu.edu/farmofficelive.

Posted In:
Tags: Farm Office Live
Comments: 0
By: Robert Moore, Tuesday, March 05th, 2024

Legal Groundwork

In the last post, we looked at strategies to deal with second marriages using trusts.  In this post, we look at the risks of divorce on the farm transition plan and strategies to minimize the risk.

Marital Versus Separate Assets

To address the issue of divorce, it is first helpful to know what assets are subject to a divorce. According to Ohio law, marital assets are to be divided “equitably” in the event of a divorce.   Equitable does not necessarily mean equal although an equal division of marital assets between the spouses is often the result. Divorces can be especially threatening to farmland because of the “land rich, cash poor” dilemma for farmers. In a farm divorce, it is usually not equitable for one spouse to receive all the farm assets if there are not sufficient non-farm assets for the other spouse. Thus, both spouses may receive farmland in the divorce settlement. Once the farmland is divided, either spouse can sell or transfer the land out of the family.

It is important to note that Ohio law only requires “marital” assets to be divided.  Non-marital assets, referred to as “separate” assets, are retained by the spouse who brought the assets to the marriage.  Understanding the difference between a separate asset and a marital asset is critical when attempting to mitigate the risks of divorce.

Separate assets include the following:

  • Property acquired by a spouse prior to the date of the marriage.
  • Passive income and appreciation from separate property received by a spouse during the marriage.
  • An inheritance received by a spouse during the marriage.
  • A gift received by a spouse during the marriage.

The above list would seem to make it an easy exercise to determine which assets are marital and which are separate in a divorce situation. However, like many legal issues, the application of the concept is more complicated than it may appear. This is because Ohio law also provides that income or appreciation on separate property can become a marital asset.

Ohio law includes as marital property:

“… all income and appreciation on separate property, due to the labor, monetary, or in-kind contribution of either or both of the spouses that occurred during the marriage. ”

So, it is possible for an asset to be partially separate (the initial property) and partially marital (the income and appreciation on the property).

Consider the following example:

Andy and Beth are farmers in the process of divorcing. Shortly after they were married, Beth inherited a 100-acre farm from her grandmother. When she inherited the farm, it was valued at $600,000. A few years after inheriting the farm, Andy and Beth’s farming operation paid for and installed $80,000 of drainage tile on the farm. The current value of the farm is $1 million.

In this example, the farm was Beth’s separate asset upon inheritance. However, the tile that improved the quality and value of the farm was a result of Andy and Beth’s joint farming operation. Andy likely has a valid claim that at least part of the $400,000 increase in value is a marital asset due to the tile installation.

Perhaps Andy further argues that most of the increase in value was due to fertilizer, tillage and other soil improvements made while Andy and Beth farmed the land. It is in Andy’s interest to make the $400,000 increase in value a marital asset. Conversely, Beth could argue that the increase was not a result of the marital farming operation but was merely a passive value increase due to market pressure. It is in Beth’s interest to argue the $400,000 increase as her separate asset.

As this example illustrates, an asset that is initially a separate asset can become, at least in part, a marital asset. Both Andy and Beth have valid arguments. It is not hard to imagine how much time and legal fees could be spent resolving or litigating the issue in a contentious divorce.

Co-mingling assets can also cause a separate asset to become a marital asset. If the spouse owning the asset voluntarily allows the other spouse to become an owner of the asset, it is likely to become a marital asset. Using the example above, after Beth receives the farm, she adds Andy’s name to the deed as co-tenant. Because she voluntarily added Andy to the deed and gave him half ownership, Beth has likely changed the property from a separate to a marital asset.

Another example might be as follows:

Beth receives a $100,000 inheritance from her grandmother. Beth deposits the money in a bank account owned by both her and Andy.

By co-mingling the inherited money with other money owned jointly with Andy, Beth has probably made the $100,000 inheritance a marital asset. If Beth would have deposited the money in an account owned only by her, the inheritance would have remained a separate asset. While co-mingling does not automatically make an asset become marital property, the spouse owning the asset should avoid co-mingling if wanting to keep the asset separate.

Assets acquired during a marriage will almost always be considered marital property. This is true even if one spouse provided little or no contribution towards the acquisition of the asset. Ohio law considers marriage to be a partnership regardless of the contribution of the spouses. For example, farmland purchased during the marriage will be a marital asset even if only one spouse operates the farm and the other spouse is not involved with the farmland or farming operation.

Prenuptial and Postnuptial Agreements

A prenuptial agreement can help alleviate the issues with marital assets. This type of agreement entered into prior to marriage designates what assets each person is bringing to the marriage, what assets will be separate, and what assets will be marital. Especially for people who have accumulated some wealth prior to marriage, a prenuptial agreement is a good option to avoid future disputes regarding the nature of assets in a marriage and potential risks to farmland.

To be valid and enforceable, a prenuptial agreement should:

  • Be in writing and signed by the parties;
  • Be prepared, reviewed and executed long before the marriage;
  • Provide each spouse’s assets, including values;
  • Be reviewed by separate attorneys representing each spouse.

Prenuptial agreements can become outdated, especially when marriages last many years.  A married couple who enters into a prenuptial agreement when they are 25 may have very different assets and goals when they are 65.  Until recently, married couples in Ohio were stuck with their prenuptial agreement regardless of how unfair or obsolete the agreement had become.  Recently, legislation was adopted to allow for postnuptial agreements.

A postnuptial agreement is similar to a prenuptial agreement in that it identifies which assets are to remain outside of the marriage and what assets are considered joint, marital assets.  A postnuptial agreement is signed sometime after marriage begins.  There are no term requirements for a postnuptial agreement – it can be entered into shortly after marriage or many years after marriage.

For a prenuptial agreement to be terminated or amended or for a postnuptial agreement to valid, the law requires the following:

  • The agreement be in writing and signed by both spouses,
  • The agreement is entered into freely without fraud, duress, coercion or overreaching,
  • There was full disclosure, or full knowledge, and understanding of the nature, value and extent of the property of both spouses,
  • The terms do not promote or encourage divorce or profiteering from divorce.

For people who are considering getting remarried or for those that are already remarried, a prenuptial or postnuptial agreement should be considered.  These agreements can establish how assets are to be divided in the event of a divorce and perhaps relieve some worries regarding farm transition planning.  Prenuptial and postnuptial agreements should be drafted in consultation with an attorney.

For more information on farm transition strategies to address second marriage issues, see the new bulletin FARM TRANSITION PLANNING STRATEGIES FOR SECOND MARRIAGES available at farmoffice.osu.edu.

Template Contract
By: Jeffrey K. Lewis, Esq., Thursday, February 29th, 2024

In this rendition of the Ag Law Harvest, we bring you some contracts! Over the course of February, there were three Ohio cases that demonstrate the importance of having a written contract, the ability to form a contract through your actions, and the need to make sure specific terms within a contract can be enforceable. 

Handshake Agreements Can Be a Double-Edged Sword.
In this case we are introduced to two brothers (the “Plaintiffs”), who were equal partners in a farming business that included buying and selling livestock. As part of their business, Plaintiffs sold cattle to Defendants between 2009 and 2017. The parties did not have a formal contract in place and conducted business on a “handshake agreement.” 

The Plaintiffs claim that the Defendants acted as intermediaries, purchasing heifers from them, and reselling them to other dairy farmers or at market. According to Plaintiffs, it was customary for the Defendants to pay for the cattle immediately upon delivery or within 30 days. However, around 2016, Defendants allegedly wrote checks for seven transactions but asked Plaintiffs not to cash them due to insufficient funds. Plaintiffs assert that Defendants never honored these checks, resulting in an outstanding amount of $128,950. Despite Plaintiffs' attempts to collect, Defendants denied owing any money, arguing that Plaintiffs were fully paid through later payments or third-party transactions. This disagreement led to the filing of Plaintiffs' lawsuit.

In February of last year, the trial court granted Plaintiffs summary judgment and awarded them $120,150. Defendants appealed the trial court’s decision arguing that summary judgment was inappropriate because whether or not Defendants owed Plaintiffs any money was in dispute. The appellate court agreed. 

In its opinion, the appellate court stated that it was clear that “the trial court weighed the credibility of the parties. . .” The appellate court also made it clear that “[s]ince resolution of the factual dispute will depend, at least in part, upon the credibility of the parties or their witnesses, summary judgment in such a case is inappropriate.” Furthermore, the court noted that because there was no written contract between the parties, the only evidence to demonstrate the particulars and common practices of the handshake agreement comes from the personal knowledge of the Plaintiffs and Defendants. Therefore, because both parties disagree as to whether Defendants owe any money to Plaintiffs, the trial court should not have ruled in favor of Plaintiffs on summary judgment. Consequently, the case is remanded to the trial court for further proceedings, potentially including a trial.

This case shows us two things, the importance of having a written contract and the importance of recordkeeping. The parties to this lawsuit must now argue that their recollection of events is the true and accurate recollection. Both parties will likely be judged by a group of jurors and one party is bound to be out a large sum of money. A written contract could have avoided much of the dispute by including language about the process for payment, record keeping requirements, and other terms and conditions that would have governed the relationship of the parties. Now, because there is no written contract, this case becomes a case of “he said-he said.”  

Implied Contracts Can Be Formed Based on a Tacit Understanding.
The second case demonstrates that the surrounding facts and circumstances can create an implied contract even when no signed contract exists. In this case Plaintiff, a residential construction company, provided the Defendant-homeowners with two written quotes for roofing and other work at their home. The quotes included various services and specified a 30% upfront payment with the remainder due upon completion of the work. Although the Defendants did not sign or date the quotes, they paid Plaintiff $6,815, which was stated to be a 30% prepayment for the total quoted amount of $22,717. 

After completing the roof, Plaintiff submitted a bill to the Defendants for the balance due on the roof. The Defendants took issue with the invoice for two reasons: (1) the price did not match the quotes, and (2) Defendants believed that payment would not be due until all items on both quotes were completed. Ultimately, the parties parted ways and Defendants asked Plaintiff to not return to their home leaving the remainder of the work listed on the two quotes uncompleted. 

Plaintiff sued the Defendants alleging breach of contract, seeking payment for the finished roof. The matter proceeded to a bench trial where the trial court found that the two quotes and the 30% payment operated as an implied contract and not an express one. The trial court also held that Plaintiff did partially perform the agreement and should be paid for the roof installation. 

The Defendants appealed, arguing that Plaintiff could not recover in this case because Plaintiff only alleged a breach of an express contract and did not seek recovery for breach of an implied contract. The appellate court disagreed. The court noted that under Ohio law there are three types of contracts: (1) express contracts, (2) implied in fact contracts, and (3) implied in law contracts. 

The court went on further to explain when the three different kinds of contracts are created. An express contract is created when there is an offer and acceptance of written terms. An implied in fact contract requires a “meeting of the minds” and that “is shown by the surrounding circumstances which [make] it inferable that [a] contract exists as a matter of tacit understanding.” Lastly, with an implied in law contract “there is no meeting of the minds” but the law will create civil liability for a person in receipt of benefits which they are not justly entitled to retain.   

The appellate court held that the trial court correctly found there was no express contract between the parties, rather there was an implied in fact contract. The court reasoned that the two written quotes and the 30% prepayment created a tacit understanding amongst the parties. Furthermore, the court concluded that because an implied contract existed amongst the parties, Plaintiff is entitled to recover for the work they did do. Lastly, the trial court noted that Defendants should have been aware that Plaintiff’s breach of contract claim would not only apply to express contracts but also to implied contracts. 

Noncompetition Agreement Found to be Unenforceable. 
In our final case we are introduced to a salesman that was being sued by his former employer for breach of a non-competition agreement (the “NCA”) after going to work for a direct competitor. Plaintiff, Kross Acquisition Co., LLC (“Kross”), is a basement waterproofing contractor. Kross provides service in southwestern Ohio, southeastern Indiana, and northern and eastern Kentucky. Kross’s former employee Roger Kief left to work for Groundworks Ohio, LLC (“Groundworks”). Groundworks is engaged in substantially the same business as Kross and serves the entire state of Ohio as well as Kentucky, Indiana, and many other states. 

Kief began working for Kross in 2017 and signed the NCA. The NCA prohibits Kief from disclosing confidential information and from working anywhere in Ohio or Kentucky for any competing company for a period of two years after leaving Kross. In February of 2022, Groundworks offered Kief an identical position with a start date of March 2022. 

Kross filed lawsuit against Kief for failing to adhere to the NCA. The trial court found the NCA unenforceable and granted summary judgment in favor of Kief. Kross filed an appeal arguing that the trial court erred when it found the NCA unenforceable. The appellate court disagreed. The court noted that the following factors are used to analyze whether a noncompetition agreement can be enforceable: 

1. Time and space limitations: Whether the agreement specifies a reasonable duration and geographic scope for its restrictions.

2. Sole contact with the customer: Whether the employee is the primary or sole contact with the employer's customers.

3. Confidential information or trade secrets: Whether the employee has access to and possesses confidential information or trade secrets of the employer.

4. Limitation of unfair competition: Whether the covenant aims to prevent unfair competition or if it overly restricts ordinary competition.

5. Stifling of inherent skill and experience: Whether the agreement unreasonably stifles the employee's inherent skill and experience in the industry.

6. Disproportionate benefit to the employer: Whether the benefit gained by the employer from the agreement outweighs the detriment imposed on the employee.

7. Bar on sole means of support: Whether the agreement bars the employee's only means of earning a livelihood.

8. Development of restrained skills during employment: Whether the skills restricted by the agreement were actually developed during the employee's tenure with the employer.

9. Incidental nature of forbidden employment: Whether the forbidden employment is merely incidental to the employee's primary employment with the employer.

Based on the foregoing factors, the court found that the geographic and time limitations “exceeded what is necessary to protect Kross’s legitimate business interests.” Therefore, the appellate court found the NCA unenforceable.   

By: Robert Moore, Tuesday, February 27th, 2024

Legal Groundwork

Second marriages present unique challenges for farm transition planning.  This is especially true when the second marriage occurs later in life and the spouses have accrued significant assets and/or have children from prior marriages.  The spouses in a second marriage obviously want to help provide for each other but may have a competing interest of providing for their children but not necessarily stepchildren.  Without good planning, it is possible that farm assets will end up with a spouse or stepchildren who were not involved in the farming operation.

One of the challenges with second marriages occurs when one or both spouses have children from a prior marriage.  The spouses usually intend to provide adequate income to the surviving spouse upon the death of the first spouse to pass away.  Also, the spouses will usually want some or all of their assets to ultimately go to their children, not their spouse’s children.  So, the issue becomes, how to establish a plan to take care of the surviving spouse while ensuring the deceased spouse’s assets go to their own children?

Consider the following example, a typical second-marriage, farm transition scenario:  

Mark and Mindy each have two children from previous marriages.  Mark has farmed his entire adult life and built a large farming operation prior to marrying Mindy.  Mindy has two children and is not involved in the farming operation.  Mark’s two children plan to take over the farming operation.  If Mark dies before Mindy, he wants to make sure Mindy has adequate income for the rest of her life.  However, he wants his assets to be inherited by his children and not Mindy’s children.

Let’s first look at what poor planning might look like.  If Mark and Mindy do not have an estate plan or a simple estate plan where everything goes to the surviving spouse then to the children, Mindy’s children could end up with some or all of Mark’s assets.  In this scenario, if Mark dies first, all of his assets will go to Mindy.  At that point, Mindy will have total control of the assets and could sell them all or leave them all to her children.  For second marriages, no plan or a simple plan is usually not adequate to meet the goals of a farm transition plan.

The better plan is to use a trust.  A trust can hold the deceased spouse’s assets for the surviving spouse’s life, thus providing income.  Then, at the surviving spouse’s death, the assets are distributed to the deceased spouse’s children.  The surviving spouse never has ownership of the deceased spouse’s trust assets, so the assets are never in danger of ending up with the surviving spouse’s children.

Continuing the previous example, Mark establishes a trust with the following terms: 

“Upon my death, my farm assets shall be held in trust for the life of Mindy.  While held in trust for Mindy, my Trustee shall distribute all income to Mindy.  Upon the death of Mindy, my Trustee shall distribute the assets to my children.”  

These trust provisions will meet Mark’s goals of providing for Mindy while having his children eventually inherit his assets.  

Sometimes we may want some assets to go directly to the deceased spouse’s children at death and some held in trust.  This is very common for farm plans.  When children will be taking over the farming operation, we may not want to tie up the operating assets in trust but instead have those go directly to the farming children.  To implement this plan, the trust may have provisions similar to the following: 

“Upon my death, my Trustee shall distribute all my farm machinery, grain, crops and other farm operating assets to my children.  The remainder of my assets, including my farmland, shall be held in trust for Mindy.  While held in trust for Mindy, my Trustee shall distribute all income to Mindy.  My Trustee shall offer to lease the farmland to my children for 80% of the county cash rent average.  Upon the death of Mindy, my Trustee shall distribute all remaining trust assets to my children.”

These trust provisions allow the farming operation to be inherited directly by Mark’s children, allowing a seamless transfer of the farming operation.  The farmland is held in trust and leased by the children.  The rental income from the farmland is provided to Mindy for the remainder of her life.

A third variation provides some assets outright to the children, some assets outright to the surviving spouse and some assets held in trust.  This type of plan might be used when the spouses wish for some assets to go directly to the surviving spouse, without being held in trust.  This is often done with cash or other financial accounts to provide immediate and freely available money to the surviving spouse.  Trust provisions reflecting this type of plan may be as follows:

“Upon my death, my Trustee shall distribute all my farm machinery, grain, crops and other farm operating assets to my children.  My Trustee shall distribute my First National Bank account and Acme Financial Account to Mindy, outright and free of trust.  The remainder of my assets, including my farmland, shall be held in trust for Mindy.  While held in trust for Mindy, my Trustee shall distribute all income to Mindy.  My Trustee shall offer to lease the farmland to my children for 80% of the county cash rent average.  Upon the death of Mindy, my Trustee shall distribute all remaining trust assets to my children.”

These trust provisions provide cash to Mindy for which she has immediate access and control.  The farm assets continue to go directly to the children so that they can continue the farming operation and the farmland is held in trust to provide income for Mindy.

In conclusion, a trust can be designed with a great deal of flexibility and creativity. The surviving spouse can be provided with adequate income while protecting the assets for the deceased spouse’s children.  A simple transition plan or no plan at all can result in some or all the deceased spouse’s assets being inherited by the surviving spouse’s children.  Trusts are often an important component of a farm transition plan for second marriage scenarios.

In Part 2, we will discuss prenuptial and postnuptial agreements.

Pages