Would like to use an existing 12/2 line from a now defunct water heater running 230 Volt to this junction box. Would like to change or split this 230 Volt 12/2 into 2 each 12/3 lines to run 2 separate 115 Volt plugs. How do we do that without having to run another new 12/3 line from the panel?
There is no safe way to get two 120V circuits from 12/2 cable, unless you are willing to install a transformer and a panel.
What you can do is get a single 120V/20A circuit out of it, by moving the white wire to the neutral bar and installing any number of NEMA 5-15 or 5-20 receptacles. (you can keep using the same breaker). That will carry a fair amount of load, though not quite as much as you'd hope for.
Your question has some confusing details, but I will try to answer what you are likely asking.
Most likely you have 240v being fed by 12/2 (or 10/2) cable, if done properly the white should be re-identified (marker,paint,taped) and connected in the panel as a hot.
You can't practically get two dedicated 120v circuits from 12/2 (or 10/2) cable because you would need 4 wires, which are two hots fed from opposite legs in the panel, one neutral, and the ground. What you have is two opposing hot legs, a ground, and no neutral conductor.
If your cable is black/white/bare then if you can remove the re-identification from the white, re-terminate the white wire in the panel to the neutral bar, and then could run multiple receptacles on the same single 120v pole of a 15 or 20 amp breaker.
It is a little odd to have 12/2 feeding a water heater, a majority of water heaters are fed by a 30A circuit with 10/2. If this is the case you could (somewhat impractically) re-terminate the white as above, mount a small electrical panel (or fused disconnect) and feed both legs of the panel with the same hot and feed two 120v 15A circuits.