Why it happens · Individuals in personal transitions
Estate planning, divorce & personal liquidity events
Illiquid startup equity is still a real asset that has to be accounted for in a divorce settlement, an estate plan, or a personal bankruptcy. A secondary sale — sometimes of a very small position — converts that equity into cash or a clean, transferable asset so it can actually be divided, distributed, or valued the way any other asset would be.
Worked example
A worked example of a divorce-driven partial sale (illustrative figures):
- A divorcing couple's shared assets include a $2 million illiquid startup stake, held by one spouse from an early employment period. Splitting the position in kind would leave both parties holding illiquid, hard-to-value stock jointly — an outcome most settlements try to avoid.
- Instead, the holding spouse sells $1 million of the position through a private secondary transaction at a 15% discount to the last marked value, netting approximately $850,000 in cash.
- That cash is used to buy out the other spouse's claim on that portion of the asset directly, while the holding spouse keeps the remaining $1 million of stock (at last mark) outright — a cleaner settlement than a jointly held illiquid asset neither party can independently sell.
- The same logic applies to estate settlements: converting a portion of illiquid equity to cash before or during probate avoids forcing heirs to jointly manage — or fight over — a position none of them can sell on their own timeline.
See every reason a secondary sale happens, or go back tohow a deal actually works step by step.