In such a case, the agreement still needs to specify that the cash proceeds from the insurance policy will be used for the purchase of your share of the business.
With this in place, the above problems may be solved, leading to the following outcomes:
- The $450,000, funded through a life insurance policy on your life, is used to buy your share. Bill gets to own 100% of the business.
- Your spouse gets $450,000 in cash for your share of the business. He/she can add this $450,000 to your other assets to repay the mortgage and assist in raising the children.