Blackstone, whose primary business includes buying and selling companies and real estate assets, as well as lending to them and buying their debt, faced restrictions on the use of its advisory arm.
"As the largest alternative asset manager in the world, and with our investing areas considerably broader and larger than even a few years ago, we have not been free to aggressively grow our advisory businesses further out of concern for potential conflicts," Blackstone Chief Executive Stephen Schwarzman said in a statement.
Following a tax-free spin-off that is expected in 2015, Blackstone's current shareholders will own 65 percent of the new publicly listed company. Taubman, his firm's partners and Blackstone's advisory employees will own the rest.
Blackstone's advisory businesses being spun out account for a tiny fraction of the New York firm's earnings, generating about $185 million of revenue for the six months to the end of June. Blackstone had total revenue of $3.7 billion in the same period.
Blackstone shares rose in early trading in New York following the announcement. (Get the latest quote here.)
—Reuters contributed to this report.