Ask The Business Lawyer

Here's a nightmare for you.  You and your partner signed a partnership agreement, began your business, built it, and were on the verge of seeing it really take off when the unthinkable happened:  your partner was hit by a drunk driver while crossing the street on the way to work and killed.  Not only do you have to cope with a shattered (business) life, but also you have to face the grueling details of buying back your partner's interest in the business.  Not surprisingly, your partner's spouse is pestering you for the money in order to meet family expenses.  But the value of the business interest is far greater than cash flow.  Where will you get the money?

That's where a bit of planning can help everyone breathe easier during this difficult time . . . and life insurance can help.  As Richard Ginnaty points out in his article on the subject, "Life insurance on the partners in a business can be an effective way to ensure that the business survives the death of a partner and provides funds to the beneficiaries of the deceased partner." 

Business owners have a choice:  either the company can own the policy or the partners can own the policy and then use the funds to buy the deceased owner's interest.  But as Ginnaty notes, there are tax consequences depending on the path you choose.  Either way, make sure your accountant, attorney, and insurance professional are all on the same page so that you benefit from a cohesive strategy!