Q I've been looking for help to make compensations fair in my farming partnership with my younger brother. For 10 years, from 1980 to 1990, we were in a three-way partnership with our
father. Then, Dad retired and reconciled the partnership as fairly as he thought.
My brother and I each own land; the livestock and machinery are 50/50 and income and expenses are split 50/50. We jointly rent our father's land only if we farm it together. We file separate tax returns.
The problem is we're not clear what should be used to reconcile compensation or how to carry it out. We have not made year-to-year adjustments. We keep good records, and if I use family living, principal on land, principal and interest on home, personal and real estate taxes and other personal withdrawals, it would be about even to this point. That does not include compensation for time. We have no written agreement as to how or if we will make any compensation.
The concern that I have is that in the past five years my brother has bought a new house, new van and new pickup. My family is grown, but his is still young and his financial needs far exceed mine. With our spreadsheet showing we will barely meet our commitments this year, there will be no available cash to even make any adjustments.
It seems to me the main goal my father had is that my brother and I farm together. My brother has taken on more refereeing jobs and a family lawn-mowing business to help with his financial needs, but this takes more time away from the farming operation.
It seems like we have different goals. It looks like dealing with these issues will be difficult. I am concerned about family relationships. If there is any way you could help us we would certainly appreciate it.
—Brothers in Arms
A I think any family farming business that includes multiple families or generations has differing goals for the business and varying financial goals for the individuals and families involved. The only effective way to navigate through these differing (and often competing) goals is through open communication, compromise and long-term planning. And yes, this can be difficult—however, it can be less difficult if the two of you meet regularly and approach each other in as nonconfrontational a manner as possible.
You say that things are about even at this point—without taking the time spent working into account—so you are at least somewhat in balance. And, if I understand your letter, your brother's purchasing patterns are a concern because he seems to be spending more these days. However, he has off-farm jobs that add to his income while requiring time away from the farm. So the solution revolves around finding an equitable formula regarding the time you put in versus the money you get out.
Let's look at the time you guys spend working on the farm as "administrative costs.” This will cover everything from tractor driving to record keeping. Come up with an acceptable per-hour value for your administrative costs and multiply it by the time each of you spends working on the farm. What is fair in terms of that number? Your work has value—and you'll have to value it at a level that you both can agree on. Then, keep meticulous track of your time and pay yourself and your brother whatever that is at the end of the month or year.
- September 2008