Disbursements from the escrow account: Overview, definition, and example
What is disbursements from the escrow account?
Disbursements from the escrow account refer to the release or payment of funds that are being held in an escrow account. An escrow account is a special bank account where money is kept by a neutral third party (called the escrow agent) until certain conditions in a contract are met. Once those conditions are satisfied, the funds are disbursed—or paid out—to the appropriate party.
In simple terms, this is the step where the money finally moves from “on hold” to “in your hands.”
Why is disbursements from the escrow account important?
Escrow accounts are used in business deals to build trust. They make sure that no money changes hands until both sides have done what they agreed to do. The disbursement process is the final, critical step where the deal is completed and the money is released.
A clear clause about disbursements protects both parties by spelling out exactly when and how funds will be released. Without it, you risk delays, confusion, or disputes over who gets paid—and when.
This is especially common in mergers and acquisitions, real estate transactions, and large service or licensing agreements.
Understanding disbursements from the escrow account through an example
Let’s say you’re selling your business for $500,000. The buyer agrees to put $100,000 in escrow, to be held for six months in case any post-sale issues come up (like hidden debts or missed taxes). The contract includes terms for when that money can be released.
After six months, there are no problems or claims—so the escrow agent disburses the $100,000 to you. That’s a disbursement from the escrow account—and it only happens because the agreed conditions were met.
But if there had been a valid claim against the escrow, the funds might have gone to the buyer or been split, depending on the terms.
An example of a disbursements from the escrow account clause
Here’s how this clause might appear in a contract:
“Funds held in the Escrow Account shall be disbursed by the Escrow Agent upon joint written instruction of the Buyer and Seller, or in accordance with the terms specified in Schedule B. In the absence of a dispute, any undisputed funds shall be released to the Seller within ten (10) business days following the expiration of the escrow period.”
Conclusion
Disbursements from the escrow account are the final step in an escrow arrangement—where funds are released once both sides have met their obligations. It’s a key part of building trust in business transactions and making sure money changes hands only when it’s supposed to.
If your deal involves an escrow, make sure the disbursement terms are clear: who gets paid, when, and under what conditions. That way, everyone knows what to expect—and you avoid confusion or conflict when it’s time to close the deal.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.