Contract soulte (a type of cash settlement)
What is contract soulte?
It is a cash settlement designed to balance out an over-payment, either in cash or kind, from one party to another. Contract soulte is a form of compensation applied in any situation where one party has gained more out of an arrangement than is thought equitable.
Where have you heard about contract soulte?
As an investor, you may have come across it in company documents relating to agreements to compensate one or other party for an apparent inequality of outcomes in an exchange of assets. You may also have seen the word used in relation to divorce settlements.
What you need to know about contract soulte.
Contract soulte is a legal term, almost certainly French in origin, that describes a payment designed to re-balance the outcome of a transaction in an equitable way. For example, a company may sell a subsidiary to another firm for a specified sum, but this sum takes no account of the pension liabilities involved.
Without a soulte payment, the vendor would be taking more from the deal than it is entitled to. In a divorce case, the ex-spouse who remains in the former marital home would make a soulte payment to compensate the other party for what would otherwise be an unfair gain.