Step 7: Distribute the money and property.
First, create a payments account by adding together all of the amounts that the recipients must "pay" for the items they've won, together with any cash that's being distributed. Divide the total by the number of recipients.
Example: In the Snider family example, Bob won the lawn mower for $150 and the walnut desk for $900, while Mary won the ceramic horse for $300. Steve won nothing. In addition, $300 in cash is being distributed. Here's their payments account:
Now create "share accounts" for each of the recipients. At the top, put the recipient's share of the payments account total. From that, subtract the second-highest bid prices of all of the items the recipient won. The net amount ("cash settlement") tells how much cash the recipients must give or receive in order to balance the shares.
Steve ends up with $550 cash and no property. Bob gets the lawn mower and walnut desk, but he must contribute $500 of his own money. Mary gets the ceramic horse plus $250 cash.
Collect money from any recipients with negative "cash settlement" balances. Combine that money with any cash that's being divided and distribute it to those recipients with positive cash settlement balances.
Example: The $500 from Bob is combined with the $300 that was to be divided among the three recipients. Of that $800, $550 goes to Steve and $250 goes to Mary.
Did the EqualShares Method work for the Sniders?
Yes. Each item went to the person who valued it the most, and each of the Snider kids got an equal share of the total:
Steve got $550 in cash, so his share was $550.
Bob got a lawn mower (valued at $150) and a walnut desk (valued at $900), but gave up $500 of his own money. His share was also $550.
Mary got a ceramic horse worth $300 plus $250 in cash. Her share was $550 as well.
But what's great about the EqualShares method is that each of the Snider kids walks away secretly believing that he or she got more than an equal share. Look again at how much they bid on the different items:
Steve's happy: From his bids, we know that Steve thinks that the non-cash property is worth $100 + $800 + $250, or $1,150. Adding to that the $300 in cash, he must think that the total value of what's being distributed is $1,450. But he's walking away with $550 in cash, or about 38% of what he thinks everything is worth.
Bob's happy: Bob's bids tell us that he thinks the non-cash property is worth $300 + $1,200 + $300, or $1,800. It follows that he thinks the total value of what's being distributed is $1,800 + $300 (in cash), or $2,100. He's walking away with a lawn mower (which he values at $300), and a walnut desk (which he values at $1,200), but with $500 less in his wallet. In his mind, he's better off by $300 + $1,200 - $500 = $1,000. This is almost 48% of what he thinks everything is worth.
Mary's happy: She bid $150 + $900 + $400 or $1,450 for the non-cash property, so she thinks the total property is worth $1,450 + $300, or $1,750. She ends up with a ceramic piece that she thinks is worth $400, plus $250 in cash. She thinks she's getting $650 in value, which is about 37% of what she thinks all the property is worth.
Notice that the Snider kids secretly believe that the property they've gotten is worth $550 + $1,000 + $650, or $2,200.
Compare this to what the Sniders would have achieved if the parents had given each of the kids $100 cash and let them take turns picking items. If Steve, then Bob, and then Mary had picked items, this might have been the outcome:
Steve would have picked the walnut desk, which he values at $800. Together with the $100 in cash, he would have walked away with property he secretly believes is worth $900.
Bob is indifferent between the lawn mower and ceramic horse. If he'd picked the horse, he would gotten something that's worth $300 to him. Together with the $100, he would have walked away with property he secretly believes is worth $400.
Mary picks last, so she would have been stuck with a lawn mower that she values at $150. Together with the $100, she would have walked away with property she secretly values at $250.
By letting the three kids take turns picking, the shares would have been unequal, and the value to the kids of their property would have been only $900 + $400 + $250 = $1,550. This is much less than the $2,200 value they secretly placed on the property they got using the EqualShares Method.
Go to Step 8
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Copyright © 2004 Lori Alden. All rights reserved.