Businesses with more than one owner face unique challenges in planning for the future. A buy-sell agreement is an arrangement between business partners to govern potential ownership transitions, including the “four Ds”: death, disability, divorce and disagreement.
One of the advantages of a buy-sell agreement is that can protect the company and the remaining owners by outlining how the departing owner’s shares are handled.
[Editor’s Note: You may also be interested in Estate Planning & Asset Protection in an Hour]
The traditional option to fund this type of buy-sell arrangement is disability insurance. But today, many life insurance policies offer a disability rider as an optional add-on. Bundled policies are typically less expensive than two separate policies and may cover more contingencies. Both options cover disabilities, a medical issue requiring long-term care and other serious health crises. When one owner is not able to work because of these health issues, the insurance provides a pay-out.
The vast majority of small and medium-sized business with more than one owner would benefit from the advantages of a buy-sell agreement, but only a small portion of them have one. The “four Ds” can easily be planned for, but without a formal agreement, the “four Ds” can lead to financial ruin for company owners. Talk to your financial advisor or attorney to learn more about how a buy-sell agreement might be able to safeguard your company.
[Editor’s Note: If you want to learn more about selling your business, we recommend you check out Financial Poise’s other free articles on the topic, starting with this introductory piece, “Getting Started with Business Transition and Exit Planning”.]
Jeff Motske, CFP®, is president and CEO of Trilogy Financial, a privately held financial planning firm headquartered in Huntington Beach. He is the author of The Couple's Guide to Financial Compatibility and the host of “The Jeff Motske Show,” where he guides listeners through proven steps toward financial freedom. Learn more at trilogyfs.com, or contact…
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