A first-generation entrepreneur who had built a $3M+ services business over 30 years came to Rubiq at a pivotal moment: he was ready to step back, transition the company to his younger business partner, and shift into retirement — but had no coordinated plan for how to do it without triggering a massive tax bill or disrupting the income his family depended on.

Important Disclosure: This case study is a hypothetical illustration based on a composite of client experiences. Details have been modified to protect confidentiality. The results depicted are not guaranteed, may not be representative of all client experiences, and should not be interpreted as indicative of future performance. Individual outcomes will vary based on market conditions, tax situations, and other factors.

The Situation

The business had been the family's primary wealth engine for decades. It generated strong cash flow, and most of the owner's net worth was concentrated in the company. His investment portfolio was modest relative to his total wealth — roughly $10M across a mix of brokerage and retirement accounts — and his life insurance had been structured years earlier when the business was smaller and his cash flow was much higher.

Several challenges made this transition unusually complex:

  • The business had a near-zero cost basis, meaning any sale — even within the family — would generate substantial taxable gains
  • The owner's life insurance premiums were built around his current income level, which would drop significantly once he stepped away from daily operations
  • His younger business partner wanted to buy the business but didn't have the capital to do so without external financing or creative structuring
  • The owner needed the sale to generate ongoing income to sustain his retirement lifestyle, not just a lump sum
  • There was no coordinated strategy connecting the business sale, his investment portfolio, and his tax exposure

Restructuring the Sale: Installment Notes and Capital Gains

Rather than structuring the transaction as a lump-sum sale — which would have created an enormous tax event in a single year — we worked with the family's legal counsel to structure the transition as an installment sale. This allowed the seller to recognize gain ratably over the term of the note rather than all at once.

Because the business had a near-zero cost basis, virtually all of the proceeds would be taxable. But by structuring the transaction as an installment, all of that income was treated as long-term capital gains — taxed at significantly lower rates than ordinary income. The installment payments also created a predictable, recurring income stream that replaced the cash flow the owner had been drawing from the business.

"We didn't just sell the business — we designed the transaction so that every dollar moved as efficiently as possible." — Rubiq Advisory Team

Funding the Purchase: Securities-Backed Lending

The next challenge was capital: the buyer needed to fund the purchase, and the seller didn't want to simply gift the business or take on the risk of an unsecured promissory note. We identified an opportunity to use the seller's existing securities portfolio as collateral.

The seller established a securities-backed line of credit (SBLOC) against his investment portfolio and used the proceeds to provide financing to his younger business partner for the acquisition. This approach accomplished several things simultaneously:

  • The seller retained full ownership of his investment portfolio — no assets were liquidated, so no additional taxable events were triggered
  • The SBLOC interest rate was significantly lower than commercial financing, reducing the cost of capital for the buyer
  • The seller captured the spread between what his portfolio earned and what the line of credit cost — generating additional income from the transaction
  • The buyer received favorable financing terms while the seller maintained collateral control and portfolio upside

In effect, the seller's portfolio did double duty: it continued to grow and generate returns while simultaneously serving as the funding mechanism for the business transfer.

Reconfiguring Life Insurance

With the business transition underway, the owner's income profile was changing fundamentally. His existing life insurance policies had been designed around peak earning years — with premium obligations that assumed continued business cash flow. Post-transition, those premiums would become a significant burden.

We conducted a full policy review and worked with the family's insurance advisors to restructure the coverage. The goal was to maintain the death benefit allowing the family to maintain adequate coverage for estate liquidity and family protection while eliminating annual premium obligations. Rubiq identified a strategy that accomplished both goals.

Offsetting Gains: Long/Short Direct Indexing

Even with the installment structure spreading gains over time, the annual capital gains income from the business sale was substantial. We needed the investment portfolio to actively work against that tax liability — not just grow, but generate losses that could offset the installment gains.

We implemented a long/short direct indexing strategy across the taxable portfolio. Rather than holding broad index funds, we owned individual securities that replicated the target index exposure while creating opportunities for systematic tax-loss harvesting. On the short side, we selectively shorted correlated positions to generate additional realized losses — all while maintaining the portfolio's target market exposure and risk profile.

The objective was clear: minimize or eliminate the net tax liability created by the business sale in each year of the installment period. The harvested losses offset capital gains from the installment payments, and in years where losses exceeded gains, the excess carried forward to shelter future income.

At the same time, the portfolio was constructed to generate income — through dividends, interest, and systematic withdrawals — that supported the owner's retirement lifestyle. The direct indexing approach gave us granular control over which lots to sell, when, and how to balance income generation against tax efficiency.

The Outcome

Within the first two years of the engagement, the family had:

  • A fully structured installment sale that transitioned business ownership to the buyer while converting all proceeds to long-term capital gains
  • A securities-backed lending arrangement that funded the purchase without liquidating portfolio assets — generating additional income for the seller in the process. (Securities-backed lending involves risks including margin calls, forced liquidation in declining markets, and variable interest rates.)
  • Life insurance restructured to align with the owner's post-business income and estate profile, reducing annual premium costs while maintaining adequate coverage
  • A long/short direct indexing portfolio designed to harvest losses that offset installment sale gains — with the goal to minimize or eliminate annual tax liability from the transaction
  • A retirement income plan that replaced business cash flow with a combination of installment payments, portfolio income, and SBLOC-generated spread income

The transition worked. The seller stepped into retirement with income, liquidity, and a portfolio that was actively working to reduce his tax burden every year. And the buyer took ownership with financing terms that set him up to succeed — not struggle under the weight of an overleveraged acquisition.