Beyond Buyouts: Nick Lalonde, CFP® Highlights Tax-Deferred Partnership Splits on LinkedIn

In a recent LinkedIn post, Nick Lalonde, CFP® discusses a less-common but potentially advantageous strategy for business partners navigating a separation: the tracking partnership. He challenges the conventional wisdom that a buyout is the only viable exit, particularly when it comes to managing the tax implications of such a move.

Lalonde, CFP® begins by outlining the standard approach many partners consider when dissolving their business relationship, which often involves selling shares and inevitably triggering capital gains taxes. He points out the potential downside of this method:

“Most partners think the only way to separate is a buyout. Sell the shares. Pay the taxes. Walk away. But that can mean triggering capital gains before you’re ready. Even if no third party is involved.”

The Case for Tracking Partnerships

To offer an alternative, Lalonde, CFP® introduces the concept of a tracking partnership. This structure, he explains, allows business operations to be divided while the entity remains unified on paper. The key benefit, according to Lalonde, CFP®, is the potential for tax deferral for a significant period.

“It lets you split business operations, stay under one structure on paper, and defer taxes for up to 7 years,” Lalonde, CFP® writes, emphasizing that this is a strategy “real founders have done.”

A ‘Calm Divorce’ for Businesses

Lalonde, CFP® draws an analogy to a “calm divorce” to illustrate the advantages of a tracking partnership, highlighting its ability to facilitate a clean exit without the acrimony or financial strain often associated with business dissolutions. He elaborates on the core benefits:

• Partners remain in control of their respective operational segments.
• Significant tax liabilities can be deferred, providing financial flexibility.
• Each partner can continue operating their business independently.

This approach, as described by Lalonde, CFP®, offers a pathway to preserve business value and achieve a smoother separation compared to a traditional buyout that might force premature tax payments.

Understanding Eligibility and Next Steps

While the tracking partnership presents a compelling alternative, Lalonde, CFP® is careful to note that it is not a universally applicable solution. He specifies limitations on which business structures can utilize this strategy.

“Not every business qualifies (C-corps and S-corps are out), but if you’re parting ways and you do qualify—this is a powerful way to preserve value and exit cleanly.”

He strongly advises seeking professional guidance before implementing any separation strategy. “Talk to a pro before making moves,” he urges. “Because with the right structure, you don’t have to lose big to move on.”

Lalonde, CFP®’s insights on LinkedIn provide a valuable perspective for business owners facing dissolution, highlighting a sophisticated financial tool that could help them navigate separations more effectively and with less immediate tax burden.