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

  1. #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.
    Last edited by Jeoleson; 11-17-2017 at 11:26 PM.

  2. #2
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    Quote Originally Posted by Jeoleson View Post
    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?
    What are your thoughts?

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  3. #3
    Elite Member mmm4444bot's Avatar
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    Quote Originally Posted by Jeoleson View Post
    … 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.
    "English is the most ambiguous language in the world." ~ Yours Truly, 1969

  4. #4
    Quote Originally Posted by mmm4444bot View Post
    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. #5
    Elite Member mmm4444bot's Avatar
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    Quote Originally Posted by Jeoleson View Post
    … 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.
    "English is the most ambiguous language in the world." ~ Yours Truly, 1969

  6. #6
    Quote Originally Posted by mmm4444bot View Post
    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. #7
    Elite Member mmm4444bot's Avatar
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    Quote Originally Posted by Jeoleson View Post
    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.
    "English is the most ambiguous language in the world." ~ Yours Truly, 1969

  8. #8
    Quote Originally Posted by mmm4444bot View Post
    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. #9
    Elite Member mmm4444bot's Avatar
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    Quote Originally Posted by Jeoleson View Post
    … the wife gives the husband $7,000 …
    I knew that you could do it!
    "English is the most ambiguous language in the world." ~ Yours Truly, 1969

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    I miss my ex ... but my aim is getting better
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