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.
Where this goes wrong
Personal liquidity events run on legal timetables, and private shares do not. A court date or a tax deadline does not wait for a tender window, which is why these sales often accept a wider discount than the holder expected. Starting early, and confirming what the company will actually permit, is the only real mitigation.
Frequently asked
Can private shares be divided in a divorce?
The shares themselves often cannot be transferred freely, so settlements frequently use offsetting assets or deferred arrangements instead. What is possible depends on the company's transfer terms as much as on the settlement.
What happens to private shares in an estate?
They pass under the estate but remain subject to transfer restrictions, and valuing them for tax purposes can be contentious. Executors regularly face a tax liability on an asset they cannot sell.
See every reason a secondary sale happens, or go back tohow a deal actually works step by step.