When one partner buys out the other’s share in a dissolution, rather than selling to a third party, there are significant advantages for both parties. Understanding these advantages helps partners consider buyout arrangements seriously before resorting to open market sale.
Advantages for the Selling Partner
Selling to a co-partner typically offers several advantages compared to open market sale. The transaction can be completed quickly without marketing periods. Transaction costs – agent commissions, some legal costs, and potentially some taxes – may be lower. The process is private. And there is certainty about the buyer’s ability and willingness to complete.
Advantages for the Buying Partner
The buying partner gains full independent ownership of a property they already know, without the uncertainty of an open market process. They avoid competition from other buyers and can move at a pace that suits their financial planning.
Establishing a Fair Price
The central challenge in partner-to-partner sales is establishing a fair price that both parties accept. Independent appraisal, averaging multiple appraisals, or agreeing on a pricing mechanism are all approaches that can produce mutually acceptable valuations.
Tax Advantages in Some Situations
Depending on the parties’ circumstances, there may be tax advantages to a partner-to-partner transaction compared to an open market sale. A tax advisor should analyze the specific situation.
When Buyout Negotiations Break Down
If partners cannot agree on price for a buyout, they face either returning to open market sale or going to court. An attorney experienced in dissolution can help bridge valuation gaps and structure a buyout that both parties find acceptable, avoiding the cost and uncertainty of litigation.
