There are a number of things your need to consider, not least that without a contract if your thing hits big time he'll want his 5%, and it'll be worthless.
What I'm trying to say is that a notional 5% is actually worth nothing unless you have some form of company set-up.
Here's where it starts to get tricky, because the set-up costs of the company are something that both of you should carry equally even if he's leaving. At the end of that process you'll have a value for each share based on the actual worth of the company. I'm not sure what the rules are in the states (or wherever you are) but in the UK at least the company is worth the sum of it's assets, at the start of it.
He'll be selling you 45% of his 50%, but you'll find that the sum of the assets to be far lower than the 17K that you have now. You may also want to consider what type of shareholding he has and what are his options for selling the 5% to someone else. That's just the tip of the iceberg of possibilities.
What you might be able to do, is agree a smaller payment now with a larger payment should the company meet certain targets, and nothing if it doesn't. That might give your partner the feeling that he still can benefit, and it gives you the flexibility to take control.
Honestly speaking the legal and accountancy fees in setting this whole thing up may just eat into the whole budget.
EDIT: On reflection, you could just say "here's 10K (if you're feeling generous) for your 50%, I'll set up a company worth 100 dollars that owns everything and give you 5% for which you pay 5 dollars."
Let us know how it turns out!