- WELCOME TO A LESSON ON THE SEALED BIDS METHOD
OF FAIR DIVISION.
THE SEALED BIDS METHOD PROVIDES A METHOD
FOR DISCREET FAIR DIVISION,
ALLOWING FOR THE DIVISION OF ITEMS
THAT CANNOT BE SPLIT INTO SMALLER PIECES,
LIKE A HOUSE OR A CAR.
THE METHOD DOES REQUIRE ALL PARTIES
TO HAVE A LARGE AMOUNT OF CASH AT THEIR DISPOSAL TO BALANCE OUT
THE DIFFERENCE IN ITEM VALUES.
THIS METHOD CAN BE USED FOR SUCH THINGS AS A DIVORCE SETTLEMENT
OR DISSOLVING BUSINESS ASSETS.
THE METHOD BEGINS BY COMPILING A LIST OF ITEMS TO BE DIVIDED,
AND THEN STEP ONE,
EACH PARTY INVOLVED LISTS IN SECRET A DOLLAR AMOUNT
THEY VALUE EACH ITEM TO BE WORTH.
THIS IS THEIR SEALED BID.
TWO, THE BIDS ARE COLLECTED FOR EACH PARTY.
THE VALUE OF ALL THE ITEMS IS TOTALED,
AND DIVIDED BY THE NUMBER OF PARTIES OR PLAYERS.
THIS DEFINES THEIR FAIR SHARE.
THREE, EACH ITEM IS AWARDED TO THE HIGHEST BIDDER.
FOUR, FOR EACH PARTY THE VALUE OF ALL ITEMS RECEIVED
IS TOTALED.
IF THE VALUE IS MORE THAN THAT PARTY'S FAIR SHARE,
THEY PAY THE DIFFERENCE INTO A HOLDING PILE.
IF THE VALUE IS LESS THAN THAT PARTY'S FAIR SHARE,
THEY RECEIVE THE DIFFERENCE FROM THE HOLDING PILE IN CASH.
THIS ENDS THE INITIAL ALLOCATION.
AND THEN FIVE, IN MOST CASES THERE WILL BE A SURPLUS,
OR LEFTOVER MONEY IN THE HOLDING PILE.
THE SURPLUS IS DIVIDED EVENLY BETWEEN ALL PLAYERS.
THIS PRODUCES THE FINAL ALLOCATION.
SO LET'S LOOK AT AN EXAMPLE.
A GRANDMOTHER LEAVES ALL OF HER ASSETS TO CHARITY
EXCEPT THREE ITEMS.
SHE LEAVES HER HOUSE, CAR,
AND DIAMOND RING TO HER THREE GRANDCHILDREN.
WE WANT TO DIVIDE UP THE ASSETS USING THE SEALED BIDS METHOD.
SO EACH GRANDCHILD HONESTLY AND INDEPENDENTLY PLACED
THE FOLLOWING BIDS IN THOUSANDS OF DOLLARS FOR THE THREE ITEMS.
REMEMBER, THE HIGHEST BIDDER RECEIVES THE ITEM.
SO LOOKING AT THE HOUSE, HERE'S THE HIGHEST BID,
SO PLAYER TWO RECEIVES THE HOUSE.
FOR THE CAR HERE'S THE HIGHEST BID.
PLAYER THREE RECEIVES THE CAR.
AND FOR THE RING HERE IS THE HIGHEST BID.
NOTICE PLAYER TWO ALSO RECEIVES THE RING.
SO PLAYER ONE RECEIVES NOTHING,
PLAYER TWO RECEIVES THE HOUSE AND THE RING,
AND PLAYER THREE RECEIVES THE CAR.
NOW LET'S DETERMINE EACH PLAYER'S FAIR SHARE
FOR THE FIRST SETTLEMENT.
REMEMBER, TO FIND THE FAIR SHARE FOR EACH PLAYER,
WE SUM THEIR BIDS AND DIVIDE BY THE NUMBER OF PLAYERS.
SO FOR PLAYER ONE THE SUM OF THE BIDS IS 159 DIVIDED BY 3 = 53,
AND THEREFORE PLAYER ONE'S FAIR SHARE IS $53,000.
NOTICE PLAYER TWO'S FAIR SHARE WOULD BE $61,000,
AND PLAYER THREE'S FAIR SHARE WOULD BE $46,000.
NOW WE LOOK AT THE VALUE OF THE ITEMS RECEIVED
AND THE FAIR DOLLAR SHARE.
IF THE TOTAL OF THE ITEMS RECEIVED
IS MORE THAN HIS OR HER FAIR SHARE,
THEN THE PLAYER PAYS THE ESTATE THE DIFFERENCE.
IF THE TOTAL OF THE ITEMS RECEIVED
IS LESS THAN HIS OR HER FAIR SHARE,
THEN THE PLAYER GETS THE DIFFERENCE IN CASH.
WELL, AGAIN, PLAYER ONE RECEIVED NOTHING,
AND THEREFORE THEY RECEIVE THEIR FAIR SHARE IN CASH,
OR $53,000 IN CASH FROM THE ESTATE.
BUT PLAYER TWO RECEIVED THE HOUSE AND THE RING,
WHICH THEY VALUED AT $175,000.
AND THEIR FAIR SHARE WAS ONLY $61,000,
SO THEY PAY THE DIFFERENCE TO THE ESTATE.
AND THEREFORE THEY PAY $114,000,
BUT THEY DO RECEIVE THE HOUSE AND THE RING.
AND THEN PLAYER THREE RECEIVED THE CAR, WORTH $10,000,
BUT THE FAIR SHARE WAS $46,000.
AND THEREFORE PLAYER THREE RECEIVES THE CAR,
AND ALSO STILL RECEIVES $36,000 IN CASH FROM THE ESTATE.
NOTICE HOW BEFORE THE ESTATE PAYS THESE CASH AMOUNTS,
IT DOES RECEIVE $114,000 FROM PLAYER TWO.
SO TO DETERMINE THE FINAL SETTLEMENT,
AND AGAIN THE ESTATE IS PAID $114,000 FROM PLAYER TWO,
BUT IT PAYS OUT CASH TO PLAYER ONE
AND PLAYER THREE IN THE AMOUNT OF $89,000,
LEAVING EXCESS CASH OF $25,000 TO BE DIVIDED
AMONG THE THREE PLAYERS.
SO $25,000 IS NOW DIVIDED EVENLY AMONG THE THREE PLAYERS,
WHICH COMES OUT TO $8,333.33 FOR EACH GRANDCHILD.
THEREFORE, FOR THE FINAL SETTLEMENT PLAYER ONE RECEIVES
A TOTAL OF $61,333.33 IN CASH.
PLAYER TWO RECEIVES THE HOUSE AND THE RING,
BUT ENDS UP PAYING A TOTAL OF $105,666.67.
REMEMBER INITIALLY THEY PAID $114,000,
BUT PLAYER TWO DID RECEIVE THIS AMOUNT OF CASH BACK.
AND THEN FINALLY, PLAYER THREE RECEIVED THE CAR
AND $44,333.33 OF CASH, AGAIN, $36,000 PLUS THE EXTRA CASH.
NOW LET'S TAKE A LOOK AT ANOTHER EXAMPLE.
FOUR HEIRS, A, B, C, AND D MUST FAIRLY DIVIDE AN ESTATE
CONSISTING OF TWO ITEMS, A DESK AND A VANITY,
USING THE SEALED BIDS METHOD.
THE PLAYERS' BIDS IN DOLLARS ARE GIVEN HERE IN THE TABLE.
THE FIRST QUESTION, THE ORIGINAL FAIR SHARE OF PLAYER A
IS WORTH WHAT?
REMEMBER, TO FIND THE FAIR SHARE FOR ANY PLAYER WE SUM THEIR BIDS
AND DIVIDE BY THE NUMBER OF PLAYERS.
SO FOR PLAYER A'S FAIR SHARE WE'D HAVE 300 + 180
DIVIDED BY 4, OR $120.
NEXT, WHAT HAPPENS WITH PLAYER A IN THE INITIAL ALLOCATION?
LET'S FIRST IDENTIFY THE HIGHEST BIDS.
NOTICE HOW FOR THE DESK, PLAYER A HAS THE HIGHEST BID,
AND FOR THE VANITY, PLAYER A ALSO HAS THE HIGHEST BID.
SO PLAYER A IS GOING TO RECEIVE BOTH THE DESK AND THE VANITY,
BUT NOTICE HOW THE VALUE OF THE DESK AND VANITY
WOULD BE 300 + 180, OR $480.
BUT SINCE PLAYER A'S FAIR SHARE IS ONLY $120,
PLAYER A WILL HAVE TO PAY THE DIFFERENCE IN CASH
TO THE ESTATE.
$480 - $120 = $360.
SO AFTER THE INITIAL ALLOCATION PLAYER A
GETS THE DESK AND VANITY,
BUT PLAYER A ALSO PAYS $360 TO THE ESTATE.
AND NOW FOR THE LAST QUESTION,
AFTER THE PROCESS IS COMPLETE,
WHAT IS THE FINAL OUTCOME FOR PLAYER A?
BEFORE WE ANSWER THIS QUESTION THOUGH,
WE WILL HAVE TO DETERMINE THE FAIR SHARE FOR PLAYERS
B, C, AND D.
TO SAVE SOME TIME, I'VE ALREADY DONE THIS.
PLAYER B'S FAIR SHARE WOULD BE THE SUM OF THEIR BIDS
DIVIDED BY 4, OR $100, AND THE SAME THING FOR PLAYERS C AND D.
PLAYER C'S FAIR SHARE IS $100.
PLAYER D'S FAIR SHARE IS $75.
AND BECAUSE THEY DID NOT RECEIVE ANY ITEMS,
THEY RECEIVE THIS AMOUNT IN CASH FROM THE ESTATE.
SO PLAYER A PAID $360 TO THE ESTATE.
NOTICE THAT $275 FROM THAT AMOUNT GOES TO PLAYERS
B, C, AND D, LEAVING EXCESS CASH OF $85.
SO IF WE TAKE THE REMAINING CASH OF $85,
AND DIVIDE BY THE NUMBER OF PLAYERS, OR DIVIDE BY 4,
THIS GIVES US $21.75, WHICH EVERY PLAYER RECEIVES.
WHICH MEANS PLAYER A INITIALLY PAID $360 TO THE ESTATE,
WHICH I'M SHOWING HERE AS A NEGATIVE VALUE,
BUT THEN PLAYER A RECEIVES $21.75 BACK,
AND THEREFORE ENDS UP PAYING $338.75.
SO THE FINAL OUTCOME FOR PLAYER A WOULD BE PLAYER A RECEIVED
THE DESK AND THE VANITY, AND PAID $338.75.
I HOPE YOU FOUND THIS HELPFUL.