We analyze the effect of daily stock and bond abnormal returns around spin-off announcements. Over a three-day event window, we find statistically significant abnormal returns of 3.07 for stocks and 0.11 for straight bonds. Both stock and bond abnormal returns are higher for firms with lower interest and dividend payouts. Stock abnormal returns are also higher for firms with higher pre-spin-off leverage. Overall, we find that the firm value increase compensates for the wealth transfer effect and that bondholders wealth is not reduced as a result of spin-off.