Equity/property division math question.

[shilala]

Here is is...
Jack and Sally own properties worth $261,000. They owe $155,00 on said properties.
Along comes a divorce.
Sally agrees to take two properties worth $115,000. Jack agrees to take properties worth $146,000.
Sally had $20,000 worth of equity in one of the properties at the beginning of the marriage.
To divide the portfolio equally, taking into consideration Sally's pre-marriage equity, what %age of the $155,000 does Jack owe? What %age does Jack owe?

I realize that in the real world, Jack owes $155,000 and Sally gets properties worth $261,000, but this a hypothetical Utopian situation.

So you can poke fun at me, I came up with Jack 59% and Sally 41% (roughly).

How the hell do you figure it out?

 

[iversonyin]

you take the weighted average

ignoring the liabilities at the moment, you take jack's share 146/ 261 and you take sally's share 115/261

you get jack= 55.94% and sally with 44.06%

you do the same thing with that $155,000 except you add $20,000 for Sally's part $175,000

Jack share= 97,895 Sally= 77,105- 20,000= 57,105

 

[shilala]

Originally posted by: iversonyin
you take the weighted average

Take into consideration that I have absolutely no idea what a weighted average is, please.
(This should validate my earlier mathtarded admission.)

 

[iversonyin]

I edit my post. take a look

Is this college stuff? We are totally ignoring time value of money by the way.

 

[dullard]

Here is how I would do it. Sell both properties now.

There is $261,000 in cash - $155,000 owed. Net $106,000.

Of that $106,000, Sally had $20,000 before hand so she takes it first. Remaining is $86,000. That $86,000 is split evenly. Jack gets $43,000. Sally gets $20,000 + $43,000.

Jack buys properties worth $146,000. Jack uses his $43,000 as a downpayment. Jack now owes $103,000.

Sally buys properties worth $115,000. Sally uses her $63,000 as a downpayment. Sally now owes $52,000.

 

[iversonyin]

Originally posted by: dullard
Here is how I would do it. Sell both properties now.

There is $261,000 in cash - $155,000 owed. Net $106,000.

Of that $106,000, Sally had $20,000 before hand so she takes it first. Remaining is $86,000. That $86,000 is split evenly. Jack gets $43,000. Sally gets $20,000 + $43,000.

Jack buys properties worth $146,000. Jack uses his $43,000 as a downpayment. Jack now owes $103,000.

Sally buys properties worth $115,000. Sally uses her $63,000 as a downpayment. Sally now owes $52,000.

It didn't say they sell and re-buy property....

 

[dullard]

Originally posted by: iversonyin
It didn't say they sell and re-buy property....

How is that any different. They just sell it to themselves. The math is all the same. It is just a gimmic to clearly show why you split up the money evenly and fairly.

 

[iversonyin]

Originally posted by: dullard

Originally posted by: iversonyin
It didn't say they sell and re-buy property....

How is that any different. They just sell it to themselves. The math is all the same. It is just a gimmic to clearly show why you split up the money evenly and fairly.

Read my answer on second post. Because Jack took the property that worth more, he should get bigger share of the liability. You are splitting the liability evenly ignoring that Jack has a bigger share in asset therefore bigger share in liability

 

[dullard]

Originally posted by: iversonyin
Read my answer on second post. Because Jack took the property that worth more, he should get bigger share of the liability. You are splitting the liability evenly ignoring that Jack has a bigger share in asset therefore bigger share in liability

I simply would not sign your agreement if I were Sally.

When they married, Sally had a net worth of $20,000. Jack had a net worth of $0. Sally had $20k more than Jack. Using your logic, at the time of divorce Sallly has a net worth of $115000-$57105 = $57895 and Jack has a net worth of $146000-97895 = $48105. Now Sally only has $9790 more than Jack. That isn't a utopian fair split. Why should Jack gain $48105 during the marriage and Sally only gain $37895?

 

[iversonyin]

Originally posted by: dullard

Originally posted by: iversonyin
Read my answer on second post. Because Jack took the property that worth more, he should get bigger share of the liability. You are splitting the liability evenly ignoring that Jack has a bigger share in asset therefore bigger share in liability

I simply would not sign your agreement if I were Sally.

When they married, Sally had a net worth of $20,000. Jack had a net worth of $0. Sally had $20k more than Jack. Using your logic, at the time of divorce Sallly has a net worth of $115000-$57105 = $57895 and Jack has a net worth of $146000-97895 = $48105. Now Sally only has $9790 more than Jack. That isn't a utopian fair split. Why should Jack gain $48105 during the marriage and Sally only gain $37895?

Because Sally decide to take on the lesser value property? You are right tho...I have to look at it from equity point

 

[shilala]

Originally posted by: dullard

Originally posted by: iversonyin
Read my answer on second post. Because Jack took the property that worth more, he should get bigger share of the liability. You are splitting the liability evenly ignoring that Jack has a bigger share in asset therefore bigger share in liability

I simply would not sign your agreement if I were Sally.

When they married, Sally had a net worth of $20,000. Jack had a net worth of $0. Sally had $20k more than Jack. Using your logic, at the time of divorce Sallly has a net worth of $115000-$57105 = $57895 and Jack has a net worth of $146000-97895 = $48105. Now Sally only has $9790 more than Jack. That isn't a utopian fair split. Why should Jack gain $48105 during the marriage and Sally only gain $37895?

Dullard, I don't like your answer. But from watching you make beautiful love to numbers around here in the past, I'm certain you're right.

If Sally started with $20,000 worth of equity, she should certainly finish with $20,000 more than Jack.
If not Utopian, is there another way where Jack comes out sweeter?
I imagine it involves a lawyer and Jack and Sally ending up with far less than before.

 

[iversonyin]

Originally posted by: shilala

Originally posted by: dullard

Originally posted by: iversonyin
Read my answer on second post. Because Jack took the property that worth more, he should get bigger share of the liability. You are splitting the liability evenly ignoring that Jack has a bigger share in asset therefore bigger share in liability

I simply would not sign your agreement if I were Sally.

When they married, Sally had a net worth of $20,000. Jack had a net worth of $0. Sally had $20k more than Jack. Using your logic, at the time of divorce Sallly has a net worth of $115000-$57105 = $57895 and Jack has a net worth of $146000-97895 = $48105. Now Sally only has $9790 more than Jack. That isn't a utopian fair split. Why should Jack gain $48105 during the marriage and Sally only gain $37895?

Dullard, I don't like your answer. But from watching you make beautiful love to numbers around here in the past, I'm certain you're right.

If Sally started with $20,000 worth of equity, she should certainly finish with $20,000 more than Jack.
If not Utopian, is there another way where Jack comes out sweeter?
I imagine it involves a lawyer and Jack and Sally ending up with far less than before.

Dullard is looking from equity stand point...which is evenly spliting the equity between the two. It is the correct answer. I ignored the equity and look at the problem from asset stand point (jack get bigger share of asset, bigger share of liability)

 

[shilala]

Originally posted by: iversonyin

Originally posted by: shilala

Originally posted by: dullard

Originally posted by: iversonyin
Read my answer on second post. Because Jack took the property that worth more, he should get bigger share of the liability. You are splitting the liability evenly ignoring that Jack has a bigger share in asset therefore bigger share in liability

I simply would not sign your agreement if I were Sally.

When they married, Sally had a net worth of $20,000. Jack had a net worth of $0. Sally had $20k more than Jack. Using your logic, at the time of divorce Sallly has a net worth of $115000-$57105 = $57895 and Jack has a net worth of $146000-97895 = $48105. Now Sally only has $9790 more than Jack. That isn't a utopian fair split. Why should Jack gain $48105 during the marriage and Sally only gain $37895?

Dullard, I don't like your answer. But from watching you make beautiful love to numbers around here in the past, I'm certain you're right.

If Sally started with $20,000 worth of equity, she should certainly finish with $20,000 more than Jack.
If not Utopian, is there another way where Jack comes out sweeter?
I imagine it involves a lawyer and Jack and Sally ending up with far less than before.

Dullard is looking from equity stand point...which is evenly spliting the equity between the two. It is the correct answer. I ignored the equity and look at the problem from asset stand point (jack get bigger share of asset, bigger share of liability)

I looked at it the same way you did, except I weighed in the $20,00 difference in the property values at the beginning. I added $20,00 to the property Jack was taking then divided.
It didn't look right no matter how I scrunched it, that's why I brought it here.
To answer your earlier question, it's not a college question, it's a real life question.

 

[shilala]

And...
Thanks to both of you guys.
I sure appreciate the help!!!

 

[dullard]

Originally posted by: shilala
Dullard, I don't like your answer. But from watching you make beautiful love to numbers around here in the past, I'm certain you're right.

I've never heard it put quite like that. :beer:

There are many ways to split it. But I happen to like that method the best. In a real divorce, the parties can usually choose to split things as fairly or as unfairly as they choose. If they can't agree on their own, a judge will agree for them (usually in a method similar to mine).