EXAMPLE 2 Another Way

The second way begins by adding two rows to the chart of bids, one giving the total value of the estate to each heir (arrived at by summing the columns) and the other giving each heir’s fair share (which is one-fourth the value of the estate because there are four heirs).

Bob Carol Ted Alice
House $120,000 $200,000 $140,000 $180,000
Cabin $60,000 $40,000 $90,000 $50,000
Boat $30,000 $24,000 $20,000 $20,000
Total value $210,000 $264,000 $250,000 $250,000
Fair share $52,500 $66,000 $62,500 $62,500

546

Next, we give each item to the party who values it most. Bob gets the boat, Carol gets the house, and Ted gets the cabin. This is certainly not fair because Carol got the most valuable item and Alice got nothing. We fix this in the following way:

  • Bob got $30,000 in value but feels slighted since he felt his share was $52,500. The estate gives him the difference in cash: .
  • Carol received more than her fair share, so we have her pay the difference to the estate: .
  • Ted received $90,000 in value when he believed his fair share was only $62,500, so we have him pay the estate the difference: .
  • Alice received nothing when she believed her fair share to be $62,500, so the estate gives her $62,500 in cash.

At this point, every party has his or her fair share. However, the estate has taken in more than it has paid out. This is called the surplus.

We now divide the surplus evenly among the parties.

Finally, we give an additional $19,125 to each party, making the final division (as before) the following:

Bob gets the boat and .

Carol gets the house and pays the estate .

Ted gets the cabin and pays the estate .

Alice gets $81,625 cash .