Options for Heirs

New Iowa Law Makes Keeping Farm Together Easier

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
Some states, such as Iowa, have passed laws to try to avoid court battles that divide inherited farmland among heirs. (DTN photo by Elaine Shein)

INDIANOLA, Iowa (DTN) -- No family wants to end up in court arguing over how inherited farmland will be divided. It's even more discouraging when one owner wants to keep the land, but the court orders all the owners to sell.

Iowa just passed a law in 2018 that allows a way to equalize the property without a sale. The result: Person(s) wanting to sell can get cash out, while owner(s) preferring to keep the family farm are not forced to sell. Only 10 other states have a similar law: Alabama, Arkansas, Connecticut, Georgia, Hawaii, Montana, Nevada, New Mexico, Texas and South Carolina.

In most states, disputes between owners who inherit land and cannot agree on how to split the property often end up with the court ordering a "partition by sale." Then the proceeds from the sale are proportionally divided among all the owners.

Alternatively, a more congenial way to divide property is "partition in kind" where the parcels are physically divided to carve out a separate piece for each owner. Then each owner can do what he or she wants to do with the individual pieces of land. However, it is difficult sometimes to divide the land into equal portions or the parties are opposed to the land being divided this way.

This issue was highlighted in a 2016 Iowa Supreme Court case involving a sister and brother who owned farmland (row crop, pasture and timber) as tenants in common in two counties. The property was not easily divided into equitable parcels. So, the court said, all the property must be sold and the proceeds divided between the owners, although one of the owners preferred not to sell the property, which included the "home place."

The net effect of the old law, attorney Jim Nervig with Brick Gentry law firm in Des Moines, explained, is "if some family members wanted to keep the land and others wanted to sell, those who wanted to sell had veto power over everyone else." As soon as one person wanted to sell, even if that person owned less than 5% and all the other owners wanted to hold onto the land, that owner could go to court to "partition" the land. If the owners could not agree what to pay those who wanted to cash out their ownership, the entire property often ended up in a sale.

Under the new law, Nervig, who spearheaded Iowa's law, gives this example of a family with a doctor's son who wants to get his value out of land he co-owns with his farming brother, and they can't agree on how to divide the property. A court-appointed "referee" would get an appraisal to establish the value. The farming son has the legal right to buy out his brother at the appraised value, without having to put the property up for sale.

It just seems logical, admitted Nervig. However, that's not how the Iowa law was written before the 2018 revision. And that's not the law in many states, where the court remedy generally leans to "partition by sale" in inherited land disputes. Nervig said, "Once we called it the 'Save the Family Farm' bill, there was little opposition to the bill."

Kristine Tidgren, Director of the Center for Agricultural Law and Taxation at Iowa State University, agreed the law will change how disputes are settled. "This extensive rewrite of Iowa partition law will certainly change the way family property is divided in Iowa.

"It should also result in more settlements and fewer court proceedings regarding [inherited] property once parties understand that a partition by sale is unlikely. This change appears welcome for those wanting to keep the farm in the family," Tidgren added, and it avoids the disputed farm from being sold on the courthouse steps.

Does your state law need to be changed?

Property law is governed by state law and each state is different. But on some issues such as bankruptcy or insurance, or in this case, partition of property, legal experts from around the U.S. have written "uniform" laws to serve as a template to be adopted by each state legislature. A "uniform" template provides consistency and a comprehensive response to issues every state faces.

For more information on the Uniform Partition of Heirs Property Act (UPHPA), you can go to:

http://www.uniformlaws.org/…

Proper estate planning is the best way to reduce the likelihood or need for partitioning a farm. However, the new law gives all owners who are looking to keep the farm together when not all heirs agree, a way to avoid a total sale.

Elizabeth Williams can be reached at elizabeth.williams@dtn.com

(ES/BAS)

Elizabeth Williams