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The quick and easy answer is to set up a buy-sell agreement to have her make installment payments over a series of years.
FORBES: Exiting The Family Business: Tax Tips And Techniques
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If the spouse is unaware of the buy-sell agreement and has not consented to it, there is the risk that the payout of the life insurance proceeds will be disputed.
FORBES: It's your Buy-Sell Agreement ... But Does Your Wife/Husband/Partner Approve?
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Meet with an attorney who focuses in small business law, estate planning attorney and tax attorney in advance to discuss the tax implications of agreements such as a Buy-Sell Agreement, Shareholder Agreement, or a Stock Redemption Agreement which are commonly used in business succession planning and may be necessary to execute your succession plan.
FORBES: Identifying a Successor for Your Family-Owned Business
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Moral, ethical and just plain fair-play issues aside, a key issue in buy-sell planning is how the spouse should factor into the agreement.
FORBES: It's your Buy-Sell Agreement ... But Does Your Wife/Husband/Partner Approve?
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Options such as a buyout or sale of the partner's interest should be included in a buy- sell clause or, if complex, in a separate agreement.
WSJ: Small Business: Forming a Partnership
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The bottom line is that business owners should involve their spouses in buy-sell planning through an acknowledgement, a waiver, as a party to the agreement or in some format that will make the transaction work as intended.
FORBES: It's your Buy-Sell Agreement ... But Does Your Wife/Husband/Partner Approve?