Accounting/math problem

Factual Questions
1

I’m in the process of getting a divorce, and my wife and I agreed to split the profits from selling the house, in addition to settling a few other debts. It’s seems like a straightforward calculation, but I’m finding the results are different depending on what order I calculate the individual parts. I’m sure I’m missing something simple, but I want to make sure I have it right for obvious reasons.

So, let’s say the profit on the house is 200k. I paid off her car loan a month or so ago because her lease was up and she didn’t have the cash until the house sold. I had also loaned her dad 10k that she didn’t have the money to pay me back. (Numbers are ballpark, not actual. I assume that doesn’t effect the process and simplifies the calculations).

If I subtract the 15k and 10k from 200k, I get 175k. Divided by two the that leaves us 87.5k each. Plus the subtracted 25k, so my share is 112.5k.

If I split the 200k, we get 100k each. Then she gives me the 25k she owes me, so my share is 125k, and hers is 75k.

She calculated it the first way. I assumed the money she owed me wasn’t part of the house proceeds, so we just split it, and then she paid me back. SO I calculated it the second way. We haven’t talked about it yet, but of course we’re both going to prefer the method that nets us more :slight_smile: I’m fine with either actually, I’d just like it to be as fair as something can be in a situation like this, and I’d like to understand what the difference between the two methods is.

2

Semantically I think you want the second one. Keep in mind that the profits are both your money until it’s split up. So by paying the debts from the combined profits, you’re actually partially paying her debt to you. Having her pay 100% of the debt entails that she receives her part of the money first, and then it’s split (mathematically).

3

Jragon, of course the OP wants the second choice! It benefits him! :smiley:

That you get different results is understandable. It’s because the two of you do not now agree exactly how the money for the car lease and the loan to her dad should be handled. It depends on exactly what you agreed to before. If that was vague or unspecified, then the separate assumptions of you two may not agree. That’s the source of the difficulty.

My own thought is that since it’s her car and her dad, the money for those loans should come from her 50% of the house proceeds. But I’m a man and it could be argued I’m biased. :slight_smile:

But IANAL, and only a lawyer can advise you on the legalities and realities of resolving this.

4

Was the car (and loan) hers or both of yours? Was the loan from her or from you both together? Assuming those are both hers, then mathematically you and Jragon are correct. The profit is joint and the debt is individual, so you split the profit first and then apply the debt. If these were debts entered together, then apply the debt to the profit first.

And as you know, the right answer isn’t necessarily the mathematical one.

5

The car was one that we leased in my name during the marriage because she didn’t have a credit rating in the US (we met in Germany and then moved here later). When the lease was over (after the separation) she wanted to buy it but couldn’t because it was in my name and she didn’t have the money. So I paid for it, and we agreed it would come out of her proceeds from the house. The loan to her dad was during the marriage, with my money, but maybe legally ours since we were married. But from savings I had prior to the marriage, so maybe not. Her dad has repaid the loan to her, so it seems like if we share that debt but she’s already been repaid the debt, she’s kind of double dipping.

We’ve avoided lawyers to this point, so we don’t really have an avenue to resolve the legalities of the details. We just have to agree, or the whole thing blows up.

We haven’t actually talked about this yet. She just came up with some numbers, and I came up with different ones, and I was trying to figure out why. I don’t think she deliberately calculated in a way that benefited her, but I’ve been wrong about that kind of thing before. I was just trying to decide whether the conversation was worth having at all or if I should just eat the 10k and be done with it.

6

Think of it this way:
“I sold the house, we made 200 k”
“great, send me my 100 k!”
“Well, you already got 15 k so you could buy the car, remember?”
“Ok, send me 85 k”
“Sure. Do you want to send me the 10 k your dad gave you to pay off the money I lent him, or do you just want me to deduct that, and send you 75 k?”

7

“I sold the house, we made 200 k”
“great, send me my 100 k!”
“Well, you already owe me 25k?”
“Ok, let’s split the 25k I owe you, and send me 87.5 k”

“I sold the house, we made 200 k”
“great, send me my 100 k!”
“Well, you already owe me half of the money we spent for your car and your Dad?”
“And, Um, your Dad has already paid us back, so you need to send me half of that”
"great, send me 100k - 7.5k = 92.5k, and I’ll send you 5k, means 87.5 k NET. "

(If you are splitting the cost of the loan to her Dad, it doesn’t matter if he pays back now, later, or never, because you’re telling her to pay half to you REGARDLESS of when it is/was paid back to her)

“I sold the house, we made 200 k”
“great, send me my 100 k!”
“Well, you already owe me 25k?”
“No, let’s split the 15k on our car, I only owe 10 + 7.5=17.5”
"Right, I’ll send you 82.5K

“I sold the house, we made 200 k”
“great, send me my 100 k!”
“Well, you already owe me 25k?”
“No, the 10k loan was an asset like our house, I only owe you 5+15=20”
"Right, I’ll send you 80K

Of course, if the real problem is (a) she hates you, or (b) she can’t do math, then none of this is going to matter.

8

QFT.
I have a bachelor’s and master’s in math and Mrs. Cad barely made it through college algebra and admits she’s bad at math but whenever I make these sort of calculations she always argues with me because according to her “it doesn’t seem right”. In your case, the first scenario has you paying yourself back out of joint funds so in effect you are paying off half of your loan to yourself. In the second scenario, she is paying you off with her own money. That’s why there is exactly a $12.5k difference between the two.

9

Sometime before you split up, depending how you treat the $10,000 loan:

She has $100,000 equity in the house, no money and maybe her dad owes her $5,000. She is worth either $100,000 or $105,000.

You have $100,000 equity in the house, $15,000 in cash and her dad owes you either $5,000 or $10,000. So you are worth either $120,000 or $125,000

Now, after you buy the car and she gets her father’s money:

She has a $15,000 car and $10,000 cash. To get her back to her original value she needs either $75,000 or $80,000.

You have nothing. To get you back to your original value you need either $125,000 or $120,000

10

In accounting we would use little T-accounts to keep track of the debits and credits for each account. That’s really hard to show here online, but easy to do in Excel. Anyway, the point is that you don’t just start lumping things together, and you don’t try to do too much in one step. Accounting works because it turns very complicated things into a series of very simple steps.

Basically, you start off with 50% of a 200k asset, and two notes receivable (assets, since you will eventually collect money). That means you start by owning 125k (100+10+15), just not in cash. This is your personal net worth is little microcosm.

She starts off by owning 50% of a 200k asset, and has two notes payable (liabilities). That means her net worth is only 75k. (100-10-15)

Any set of transactions that changes the net worth of either of you will be the wrong answer. (Unless the intent is to change the distribution of wealth). Clearly, scenario 2 from the original post is the answer that achieves this.

11

Thinking like a lawyer - (IANAL)

The essence of 50-50 split is that regardless of history, everything is split 50-50.

If the loan was made BEFORE the split, and was agreed by both, then the loan is a “joint asset”; you both own the fact that dear dad owes you two $10,000. By the logic of splitsville, that’s $5,000 each. Admittedly, he’s more likely to feel obliged to pay her than you, especially after the divorce, and especially after she says “but I already gave half of what you owe me to the ex…” and besides, it’s her father. She should give you $5,000 and keep the $10,000 if/when dad pays her back.

The car? Technically, it’s half yours and half hers, but then so is your car (I assume there’s one). Let’s simplify things and say, as you seem to, that the transaction was intended to be part of the divorce settlement and you are not going to quibble over car assets. So she got a car that was partly paid for, just needed $15,000, and you got something equivalent in car value to balance. Now she wants $15,000 to pay for a car. Normally, she would take out a loan, and as a divorced person would continue making car payments until the $15,000 principle is paid off, or she gets some windfall like her half of the house sale.

So here’s my take -
The proceeds are split 50-50, $100,000 each.
Then she pays you $5,000 for your half of daddy’s loan, and if she collects, she keeps the whole $10,000.
Then she pays you $15,000 because you pre-paid her after-divorce car costs.

So you get $100,000+$5,000 + $15,000 and she gets $100,000 - $15,000 -$5000
You end up with $120,000 and she gets $80,000… but that will be $90,000 once daddy pays her back. Dad’s payback schedule is all her problem…
She also gets a free $15,000 car, so technically she gets $105,000 of assets.

Unless the loan to dad was made in anticipation of the split, as part of the arrangement ( sort of like “I’ll lend him $10,000 so he’ll be OK until you get on your feet and have enough money to send him an allowance out of your earnings…”) But if it was done with no thought of being part of a split-up, then it’s “joint property” to be split just as if you had bought a boat or an RV… or a house.

12

Forgot this detail:

But of course out of the $120,000 you got, you shelled out $15,000 to the car dealership. So in the end, you wind up with $105,000 too.

Even Steven.

(Or as that Senator would say, Eve and Steven.)

13

ISTM that the discussion of house profits and all the math are just confusing distractions that have nothing to do with the core question.

The proper way to do it is to look at the house profits and debts separately. The profit is 50:50, so each of you get $100K. Now you turn to the debts.

And the core question is: whose money was used for paying the car loan and the loan to her father? Your private money or joint money?

If it was joint money, then she is entitled to 50% of that money. So she owes you $7.5K for the car and $5K for the loan = $12.5K. If it was your private money, then she owes you $15K for the car and $10K for the loan = $25K.

After you settle that, you can subtract that amount - either $12.5K or $25K - from the loan, and you get one of your two answers. But the point is that the answer is not about how you do the math/accounting or in what order - it’s a simple, non-math, question about whose money was used for those purposes. Answer that and the rest falls into place.

14

As Fotheringay-Phipps sort of said, the car, dad, and the house HAVE NOTHING TO DO WITH EACH OTHER and should not be conflated but be two separate steps.

Split the house money then settle the debts according, as F-P said, in the manner they were incurred.

I think you two may be getting hung up on the idea that in the end (assuming the money lent was all yours) that the final tally is you 125k and she 75k. A 50k difference which looks, at a casual glance, like she’s paying the 25k twice. But you’re not starting at 0. You are starting at -25k. She is starting out at +25k.

15

That’s actually not a bad line of thinking.

However… 1) it would depend on circumstances to such a large extent that they’d really need a lawyer if they’re going to try to parse that out. The state they live in, the agreement (written? verbal? implied?) at the time of the loan, whether a separation had already started, etc.
2) just because a law entitles a 50/50 split, spouses often agree to a division that isn’t 50/50. In a case like this, the ex might say “Yeah, that loan to my dad was made because I pushed us to do it, so it’s fair for me to take 100% of it.” It’s only when they can’t agree that the courts will need to parse out the law. (When my wife divorced her last ex, she had a legal claim to a heck of a lot more assets than she settled for. But she did get some particular things, like the house, that had more than just current monetary value to her.)

16

Yes, if they’re going to nit-pick - but it boils down to 50-50. If someone wants to be magnanimous or honest and say “that was my insistence” then maybe it might devolve into “I never wanted to buy the RV”, “I didn’t want those stock investments that lost $10,000 two years ago…” - which is why the starting rule is simple - 50-50.

However, since it’s her family, I say she should get stuck with the risk of loan collection. IF she whined and pestered and threatened until he agreed to the loan - sounds like she should accept the whole burden. If it was so recent that they knew the separation was inevitable, but made the loan anyway - ditto. And so on…

For the car, my point was that normally she would go to the bank, get a loan, and pay it off going forward - after the divorce. He’s just taking the place of the bank, so the whole debt is hers. As I said, the implication is that when figuring cars and other large assets, her “car minus $15,000” balances what he’s getting, probably the other car and attendant payments. Since a car coming off lease “theoretically” is bought out at market value, in essence she’s getting nothing car-wise except a shot at a good deal.