Legal Definitions - deductis debitis

Deductis debitis is a Latin phrase that translates to "the debts being deducted."

Historically, this term referred to the essential process of subtracting all outstanding debts and liabilities from a total sum or an estate's assets to determine its true net value or the amount available for distribution. While the specific Latin phrase is not commonly used in modern legal or financial contexts, the underlying principle of deducting debts to ascertain a net amount remains fundamental in many areas, from estate planning to business valuation.

Here are some examples illustrating this principle:

• Estate Administration: Imagine a situation where an individual passes away, leaving behind an estate consisting of a house, a savings account, and some investments. However, they also had outstanding debts, such as a mortgage on the house, credit card balances, and medical bills. Before the executor of the estate can distribute any assets to the heirs, they must first pay off all these outstanding debts and liabilities. The process of subtracting these financial obligations from the total value of the assets to determine the net amount available for inheritance is a practical application of the deductis debitis principle.

• Business Valuation: Consider a small business owner looking to sell their company. The business has various assets, including equipment, inventory, and cash in the bank. However, it also carries liabilities such as outstanding loans, accounts payable to suppliers, and employee salaries due. To accurately determine the true value of the business for a potential buyer, or the equity value for its owners, all these debts and financial obligations must be subtracted from the total asset value. This calculation, which arrives at the net worth of the business, embodies the concept of deductis debitis.

• Personal Net Worth Calculation: An individual might want to calculate their personal net worth to assess their financial health. They would list all their assets, such as the value of their home, retirement savings, investment portfolios, and bank account balances. From this total, they would then subtract all their liabilities, including their mortgage, student loans, car loans, and any credit card debt. The resulting figure, which represents their true financial standing after all obligations are accounted for, is a direct outcome of applying the deductis debitis principle.