I am certain that the best method to do with is to mount the hull in a stand and use a datum line (pencil fixed in a vice or something similar) to mark a waterline along the ship.
But I have a few questions. If the model’s instructions do not show a waterline, or for instance there is no clear definition on the model’s hull itself, how does one go about calculating where it should be? Further to this, what sort of variation was there in freeboard between a loaded and empty ship? Is cutting a hull for a waterline best done when it is in halfs or glued together? I am specifically referring to sailing ships, but general principles would be interesting.
What type of sailing ship are we talking about here? If it is sailing warship, ordinarily there is a large wale/plank that roughly forms a waterline. Note that the sheerline of planks rising fore and aft means that no plank line can be used exclusively for this (this also can cause problems when painting gun deck rows too, as the painted row will not conform with the actual row of gunports). It is also important to note that waterlines were not considered to be anything like a permanent feature back in the days of sail. Individual captains would adjust their stores and cargo accordingly in order to get the best sailing performance for their ship, which could raise the bow and lower the stern, or vice versa by as much as three feet, depending on the size of the ship. The ship might be loaded light, or full, etc, etc, and this could result in quite a bit of variation. You might want to get some ‘fineline’ tape, as this can be put on and adjusted accordingly until you get the intended waterline ‘right.’ Cutting the hull would probably best be done before the hull halves are glued together, as in this way at least you can get the hull truly perpendicular to the cutting blade.
The best way to establish a believable waterline is to get hold of a good set of plans of the ship - if they exist. Actual waterlines do indeed vary, but the plans will show you what some (we hope) competent draftsman thought was the right place.
My suggestion is to make the cuts on the individual hull halves before you put them together. The old-fashioned trick of mounting a pencil in some sort of fixture will work; another, slightly simpler technique is to use a laser projector. You can get one at someplace like Lowe’s and Home Depot for surprisingly low prices (probably less than $20) these days - and it will come in handy for all sorts of other jobs around the house (e.g., hanging pictures and setting fence posts). It will project a bright red, guaranteed-straight line on your hull; you’ll just need to put the line where you want it and trace along it.
It’s a good idea to make the cut deliberately a little below where you want it to be. Then glue or clamp the hull halves together. Get hold of a nice, flat board - or better yet a piece of glass - that’s at least an inch bigger all around than the assembled hull. Stick some medium-grit sandpaper to the board (if you use glass, just sprinkle it with a little water; the back of the sandpaper will grab when dampened), set the assembled hull down on it, and scoot it around the sandpaper until the waterline is where you want it. The plastic is thin; once you get everything set up the job will only take a few minutes.
My experience is more in line with splicing together aircraft bodies, and traincars, but there alignment is really critical.
I would mark the cut line however you choose to, then mask above it with tape right at the line. Spray the part to be discarded, i.e. underwater, some highly contrasting color like black if on light plastic or white onto dark plastic. Merrily chop off the part you dont want leaving an 1/8" or so of paint. Then sand as noted on a flat surface until all the painted area ig gone.
My ship chopping has been limited to a couple of the Revell flat bottom ships, so measuring was kind of easy-equal all around as the little beasts seem to at least sit level, if too high. I would highly recommend gluing on the main deck first, as otherwise there is a fair amount of deflecting and “chatter”.
You may want to consider not cutting the hull at all, but rather “sinking” the underwater hull into your display base. Not only do you forego the work of cutting, but you retain the ability to display the entire hull, should you have a change of heart later on. I did this for a 1/350 hull, for a waterbase display. I went to a craft store and bought foamboard to make my base. Foamboard comes in 1/4" and 1/2" thicknesses, I used two layers of 1/4". I marked the plane of the hull at the waterline onto the foamboard (the marking is a procedure unto itself), and cut it out with an X-acto. The ship was placed into this cutout, adjusted a bit here and there to ensure zero list and trim, and I added the water around it. Heres a (rather crummy) photo of the result.
I’ll state here that this model was already a waterline hull of sorts, but it sat too high in the water for my taste, so I recessed it about 5/16" into the foam board. However, the method will work no matter how deep you want to sink the hull. Provided you mark the cutout accurately (again, this is a procedure itself), this might work well for you, and leave you the flexibility of how you want to display. If you do want to go this route, I have a method for marking the water plane onto the foamboard (or whatever you want your surface to be for that matter). I’m sure there are others on this forum who would gladly offer up their advice on that as well.