# Thread: Simple Equity Division: Divorcing couple needs to equalize equity, debt of vehicles

1. ## Simple Equity Division: Divorcing couple needs to equalize equity, debt of vehicles

A couple is getting divorced.
The wife will take ownership of a black car, and the husband will take ownership of a blue car.
Both vehicles are valued at $10,000. The black car is paid off and has no debt. The blue car has a loan of$14,000

Assuming that both individuals want to keep their cars. How does the couple equalize the equity and debt of the vehicles?

Here are my thoughts on this.
The wife would have to pay the husband $12,000 to equalize.$5,000 from the positive equity from her vehicle, and $7,000 from the half of the debt she is responsible for from the husband's car. 2. Originally Posted by Jeoleson A couple is getting divorced and needs to equalize the equity and debt of their vehicles. The wife has a black car worth$10,000 and has no debt associated with it.
The husband has a blue car worth $10,000 and still owes$14,000 on it.
Each individual wants to keep ownership of their vehicle.

How would the couple equalize the equity and debt of the two vehicles? Who has to pay who, and how much?

Please share your work with us ...even if you know it is wrong.

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3. Originally Posted by Jeoleson
… The black car is paid off and has no debt.
The blue car has a loan of $14,000. …Here are my thoughts on this. The wife would have to pay the husband$12,000 to equalize. $5,000 from the positive equity from her vehicle, and$7,000 from the half of the debt she is responsible for from the husband's car.
Are you representing the husband? She loses $2,000. Does the husband also lose$2,000? If he doesn't, then it's not an equitable distribution.

Hint: Begin by calculating the net value of the community assets and liabilities before distribution. You will then know the value that each party needs to end up with: half.

Work it out.

4. Originally Posted by mmm4444bot
Are you representing the husband? She loses $2,000. Does the husband also lose$2,000? If he doesn't, then it's not an equitable distribution.

Hint: Begin by calculating the net value of the community assets and liabilities before distribution. You will then know the value that each party needs to end up with: half.

Work it out.

Yep, I'm the husband...

So I think I was on the right page.

If both vehicles were sold, we would be left with a debt of $4,000. Of which, I would be responsible for$2,000, and the wife would be responsible for $2,000. So, assuming the above is correct, both individuals need to be at a$2,000 debt, even if both keep their vehicles?

If THAT is true, then the wife should have to give the husband $12,000. This would leave her with a$2,000 debt (the $10,000 equity in her own vehicle, minus, the$12,000 given to the husband). The husband would also have a $2,000 debt (the$12,000 given to him, minus, the $14,000 debt on his vehicle). Thoughts? 5. Originally Posted by Jeoleson … If both vehicles were sold, we would be left with a debt of$4,000.
I would revisit that calculation. Before anything happens, there are two $10,000 cars and one$14000 debt. How much value is that combined? Now, that net value would remain the same, if the cars were sold because you're simply exchanging vehicles for cash value.

… The husband would also have a $2,000 debt (the$12,000 given to him, minus, the $14,000 debt on his vehicle). You forgot to add$10,000 for the value of the car he got.

6. Originally Posted by mmm4444bot
I would revisit that calculation. Before anything happens, there are two $10,000 cars and one$14000 debt. How much value is that combined? Now, that net value would remain the same, if the cars were sold because you're simply exchanging vehicles for cash value.

You forgot to add $10,000 for the value of the car he got. Two$10,000 cars = $20,000 of net value. Subtract$14,000 of debt, and you get $6,000 of net value. So the wife would give the husband$3,000?

7. Originally Posted by Jeoleson
Two $10,000 cars =$20,000 of net value. Subtract $14,000 of debt, and you get$6,000 of net value.
Correct. This means that each party needs to end up with a net gain of $3000 because that's half. So the wife would give the husband$3,000?
Let's check that, to see whether her net gain (after the distribution of cars) is $3,000. 10000 - 3000 = 7000 Nope. She ends up with a$7,000 net gain instead of $3,000. 10000 - 14000 + 3000 = -1000 The husband ends up with a$1,000 debt.

8. Originally Posted by mmm4444bot
Correct. This means that each party needs to end up with a net gain of $3000 because that's half. Let's check that, to see whether her net gain (after the distribution of cars) is$3,000.

10000 - 3000 = 7000

Nope. She ends up with a $7,000 net gain instead of$3,000.

10000 - 14000 + 3000 = -1000

The husband ends up with a $1,000 debt. Okay! Got it! So the wife gives the husband$7,000.

$10,000 (car value) -$7,000 (to the husband) = net gain of $3,000 for the wife.$10,000 (car value) - $14,000 (car debt) +$7,000 (from the wife) = $3,000 net gain for the husband. 9. Originally Posted by Jeoleson … the wife gives the husband$7,000 …
I knew that you could do it!

10. Originally Posted by Jeoleson
Okay! Got it!

So the wife gives the husband $7,000.$10,000 (car value) - $7,000 (to the husband) = net gain of$3,000 for the wife.

$10,000 (car value) -$14,000 (car debt) + $7,000 (from the wife) =$3,000 net gain for the husband.
Sorry to intervene here, but who is liable on the car loan?

The loan may have been incurred to buy the husband's car and may be secured by that car, but if the wife signed for that loan, she remains liable to the creditor despite her payment to the husband. If I were the wife and those were the circumstances, I would not find this proposal even close to acceptable. Indeed, I might not find the proposal acceptable even if I were not liable on the note because I would be giving up 7000 immediately whereas the other party is giving up 7000 over a possibly extended period of time. The wife is replacing the banker and may not have the economic capacity to do so.

If the wife is liable on the note and has 7000 in cash lying around, then she should pay the 7000 to the creditor in exchange for a release, not to the husband. In any other circumstances, a solution is not just a matter of basic arithmetic. There are three parties involved, and there is a time value of money. If the wife is legally liable or believes herself morally liable (fat chance), probably the equitable and practical thing to do is to exchange the current note for 14000 with 2 notes for 7000, one due from the wife and secured by a car to which she has title and the other due from the husband and secured by the car to which he has title.

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