Friedman v. Hanis

Filing 16

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that the judgment of the United States Bankruptcy Court for the Eastern District of Missouri is AFFIRMED. A separate Judgment accompanies this Order. Signed by District Judge John A. Ross on 8/8/2017. (CLO)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

In re:
MATTHEW ERIK HANIS,
Debtor,

MEREDITH FRIEDMAN,
Plaintiff/Appellant,
vs.
MATTHEW ERIK HANIS,
Defendant/Appellant.

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Case No. 4:16-cv-01447-JAR

MEMORANDUM AND ORDER

This matter is before the Court on appeal from a Bankruptcy Court order denying
Debtor/Defendant/Appellant Matthew Erik Hanis's motion for summary judgment, granting
Plaintiff/Appellee Meredith Friedman's motion for summary judgment, and declaring that
certain debts are non-dischargeable, pursuant to 11 U.S.C. § 523(a)(15), in Mr. Hanis's Chapter
7 bankruptcy proceeding. The issues are fully briefed, and the Court heard oral argument from
counsel. For the following reasons, the Court affirms the decision of the Bankruptcy Court.
Background

The following facts are undisputed. Mr. Hanis and Ms. Friedman were married in 1995
(Bankr. Doc. 12 at ii 1). During their marriage, they jointly owned a business, M&M RET, LLC
("M&M") (Id. at ii 6). In March 2010, the couple divorced (Id. at ii 4). Pursuant to a Judgment of
Dissolution of Marriage ("Divorce Decree") entered by the Circuit Court for the County of St.

Louis, Missouri ("Circuit Court"), Mr. Hanis would pay Ms. Friedman $5,000 per month in
maintenance (Id.

~

5; Bankr. Doc. 12.l at 5, 10). Mr. Hanis's maintenance obligation was non-

modifiable, and it was to terminate only upon the death of either of the parties, Ms. Friedman's
remarriage, or final payment in May 2020 (Bankr. Doc. 12.l at 2, 5, 10). 1 The Divorce Decree
further ordered that Ms. Friedman and Mr. Hanis would each retain a 50% interest in M&M after
the divorce (Id. at 22-24; Bankr. Doc. 12

at~

6). Notably, the Divorce Decree also included the

following provision:
Either party may buy the other out of his or her interest in [M&M] by paying the
other three times the last 12 months of revenue or 50% of the net appraised value
of said business, whichever is larger. The selling party shall be guaranteed that
he/she shall be totally absolved of any debt owed by said business and the buyer
shall prove he/she has been pre-approved for refinancing the business obligations
to remove the seller from liability with respect to said obligations.
(Bankr. Doc. 12.1 at 24).
On March 12, 2012, Mr. Hanis agreed to purchase Ms. Friedman's interest in M&M, and
the parties executed an "Agreement for Purchase of Membership Interest" ("Purchase
Agreement") and a "Consent Agreement" (together "the Agreements") (Bankr. Docs. 12

at~~

7-

8; 12.2 (Consent Agreement) and 12.3 (Purchase Agreement)). Under the Purchase Agreement,
Mr. Hanis would pay a purchase price of $0 for Ms. Friedman's membership interest, which the
parties agreed "represent[ed] the larger number between three times the last 12 months of
revenue and 50% of the agreed upon value of [M&M]" (Bankr. Doc. 12.3

at~

3). In exchange,

Mr. Hanis agreed (1) to release Ms. Friedman from her obligation to operate M&M until his

1

The Divorce Decree adopted an agreement the parties had reached as to the terms of
their divorce. In a handwritten comment next to the agreed-upon provision for maintenance, the
parties appear to have tried to alter the agreement to make Mr. Hanis's maintenance obligation
modifiable upon Ms. Friedman's entrance into a co-habitation relationship (Doc. 12.1 at 5, 10).
In a stipulation of facts filed in the Bankruptcy Court, the parties agreed that the maintenance
obligation was non-modifiable pursuant to the terms of the Divorce Decree (Doc. 12 at~ 5).
2

maintenance obligation ceased; (2) to assume and hold Ms. Friedman harmless on all obligations
associated with certain, then-known debts of M&M ("Business Debts"); (3) to "release, acquit
and forever discharge [Ms. Friedman] from any and all claims, liabilities, demands, suits and
causes of action of every nature and kind ... and [to] hold [her] harmless for any obligation
related to the Business Debt"; (4) to "take all steps available and make best efforts to remove
[Ms. Friedman] from having any liability whatsoever for the Business Debt"; and (5) "[i]n the
event that any action is brought against [Ms. Friedman] for any claim involving the Business
Debt," to "indemnify and hold [Ms. Friedman] harmless for any and all such claims." (Id. at iii!
4-5, 8). The parties indicated in the Purchase Agreement that they recognized and understood
that it might not be possible to remove Ms. Friedman from the Business Debts, but that
"nevertheless, [Mr. Hanis] shall release [Ms. Friedman] from all obligations related to the
Business Debt" (Id. ii 4).
In the Consent Agreement, the parties initially recognized and acknowledged that Mr.
Hanis's maintenance obligation was not modifiable according to the terms of the divorce decree;
that under the divorce decree, his maintenance obligation could only be terminated upon the
death of either party or Ms. Friedman's remarriage or entry into a co-habitation relationship; and
that the Circuit Court could not terminate or modify Mr. Hanis's non-modifiable maintenance
obligation (Bankr. Docs. 12 at iJ 12; 12.2 at 1). The Consent Agreement indicates that the parties
nonetheless desired to enter into the Consent Agreement to modify Mr. Hanis's maintenance
obligation to Ms. Friedman and to release and indemnify Ms. Friedman from the Business Debts
(Bankr. Doc. 12.2 at 1). The Consent Agreement purports to modify Mr. Hanis's maintenance
obligation by lowering it from $5,000 per month to $3, 700 per month; changing the final
payment date from May 2020 to June 2019; and extending the obligation beyond Ms. Friedman's
3

remarriage should she remarry before January 2018, albeit in lesser amounts as set forth in an
agreed-upon payment schedule (Bankr. Docs. 12 at~~ 11, 13-14; 12.2 at 1-2). 2 Ms. Friedman
remarried in November 2012 (Bankr. Doc. 24.1

at~

20).

On July 1, 2013, Mr. Hanis filed a petition for relief under Chapter 7 of the Bankruptcy
Code, seeking discharge of, inter alia, the Business Debts. In re Hanis, No. 13-46113 (Bankr.
E.D. Mo. July 1, 2013). On February 4, 2014, Ms. Friedman initiated the adversary proceeding
underlying the instant appeal, seeking an order declaring that the Business Debts are nondischargeable in Mr. Hanis's Chapter 7 proceeding, pursuant 11 U.S.C. § 523(a)(15), because
they were incurred in connection with the parties' divorce (Bankr. Doc. 1). As relevant,
§ 523(a)(15) prevents a debtor from discharging in bankruptcy debts he incurred "in connection
with a separation agreement, divorce decree or other order of a court of record." Mr. Hanis filed
an answer, denying that the Business Debts were incurred "in connection with a separation
agreement, divorce decree or other order of a court" within the meaning of§ 523(a)(15) (Bankr.
Doc. 7), and a counter-claim seeking a declaration that the Business Debts were dischargeable
(Bankr. Doc. 8).
On July 30, 2014, the parties filed cross-motions for summary judgment (Bankr. Docs.
18-21). In her motion for summary judgment, Ms. Friedman first argued in favor of a narrow
construction of § 523(a)(15)'s exception to discharge. (Doc. 21 at 3-4). She asserted that Mr.
Hanis incurred the Business Debts "in connection with" their divorce decree because the
Agreements modified the parties' obligations under the Divorce Decree (Id. at 4-9). Ms.
Friedman emphasized that the Consent Agreement refers to the Divorce Decree nine times, that

2

According to Mr. Hanis, the $1,300 reduction in maintenance was based on the
anticipated cost to hire a property manager to assume Ms. Friedman's previous duties at M&M
(Bankr. Doc. 18.l at~ 12).
4

it modifies Mr. Hanis's maintenance obligation as well as the parties' relative ownership
interests in M&M, and that it requires Mr. Hanis to hold her harmless and to indemnify her from
the Business Debts (Id. at 6-8). Ms. Friedman further argued that the fact that two years elapsed
between the Circuit Court's entry of the divorce decree and the parties' execution of the
Agreements does not render the Business Debts non-dischargeable under § 523(a)(l5) (Id. at 910). In her view, the issue of whether a debt is incurred "in connection with" a divorce decree
does not depend on the timing of a post-divorce agreement between ex-spouses, but turns instead
on the nature of the debt incurred in the agreement ffih; Bankr. Doc. 23 at 2-5).
In support of her motion for summary judgment, Ms. Friedman cited extensively to
Woosley v. Woosley, No. 3:09-0910, 2010 WL 500423, at *4 (M.D. Tenn. Feb. 5, 2010). In
Woosley, the parties' divorce decree provided that each party would retain an interest in a
business they had owned and operated during their marriage. Id. at *2. Less than four months
after the divorce decree was entered, Mr. Woosley agreed to purchase Ms. Woosley's interest in
the business and, in exchange, agreed to make monthly payments to her for ten years. Id. Mr.
Woosley thereafter filed for relief under Chapter 7 of the Bankruptcy Code, seeking discharge of
the business's debts and his monthly payment obligation to Ms. Woosley. Id. at 3. In affirming
the bankruptcy court's finding that the debts were non-dischargeable under § 523(a)(l5), the
district court initially emphasized that the purchase agreement referred to the divorce decree
several times. Id. at *2, 6. The district court further noted that the purchase agreement had not
changed the nature of Mr. Woosley's obligation to Ms. Woosley, as he had essentially reaffirmed
his obligation to her and his commitment that the business would provide her with a source of
revenue "even if the revenue came in a somewhat different form," i.e. as monthly payments
toward the purchase as opposed to a salary paid by the business. Id. at *7. The district court also
5

concluded that basic principles of equity and fairness suggested that the debt should not be
dischargeable. Id. at *7-8. The district court thus affirmed the bankruptcy court's conclusion that
Mr. Woosley had incurred a debt, the monthly payments, "in connection with" his divorce decree
and that the debt was therefore non-dischargeable under§ 523(a)(15). Id. at *8.
In his summary judgment motion, Mr. Hanis characterized the Agreements as a postdivorce business transaction that was unrelated to the Divorce Decree (Bankr. Doc. 19 at 8-14).
In Mr. Hanis's view, the Agreements "involve the sale of a business that just happened to be
owned by former spouses, and the Business Debt that was created by the Agreements did not
arise from Mr. Hanis and Ms. Friedman's status as ex-spouses, but rather as ex-business
associates" (Id. at 13-14; Bankr. Doc. 22 at 2-4). 3 Mr. Hanis further argued that the Consent
Agreement did not modify the Divorce Decree because, according to its express terms, the
Divorce Decree was non-modifiable (Bankr. Doc. 22 at 4).
Mr. Hanis emphasized that Woosley was decided by the Eastern District of Tennessee
and thus was not binding on the Bankruptcy Court, and sought to distinguish it (Id. at 3-4). He
noted that, in Woosley, only four months elapsed between the entry of the divorce decree and the
Woosleys' business agreement, and that, in contrast, two years elapsed in the instant case (Id. at
3). Second, he argued that the divorce decree in Woosley actually divided the marital business,

3

Although it appears Mr. Hanis conceded that the Consent Agreement "memorializes a reduced
maintenance payment," he nevertheless argued to the Bankruptcy Court that "[u]ndoubtedly, the
use of the term 'maintenance' in the Consent Judgment was a misnomer, as Ms. Friedman's
entitlement to non-modifiable court-ordered maintenance terminated upon her remarriage in
November 2012" (Id. at 11). Mr. Hanis was obligated to pay Ms. Friedman maintenance under
the terms of the Divorce Decree at the time they executed the Agreements in March 2012, and
the Consent Agreement expressly stated that the parties' intended to modify the Divorce
Decree's maintenance obligation at that time. Nevertheless, Mr. Hanis argued to the Bankruptcy
Court that the parties did not intend their use of the term "maintenance" in the Consent
Agreement to refer to the Divorce Decree's maintenance obligation, given the fact that Ms.
Friedman's remarriage seven months later effectively terminated his maintenance obligation
6

thereby creating the plaintiffs ownership interest and a source of revenue for her support. (M..)
In Mr. Hanis's view, Ms. Friedman did not rely on revenue from M&M because the Divorce
Decree separately awarded her child support and maintenance (Id. at 4). Mr. Hanis contended
that the Agreements therefore did not simply reaffirm a pre-existing marital debt but instead
created a new debt more than two years after Mr. Hanis and Ms. Friedman divorced (M..).
During the pendency of the bankruptcy proceedings, the parties also filed the following
motions in their Circuit Court divorce proceeding: Ms. Friedman filed a motion to modify the
Divorce Decree in December 2013; Mr. Hanis filed a counter-motion to modify the Divorce
Decree in March 2014; and Ms. Friedman filed a Motion to Determine Amounts Due and Owing
and Motion for Contempt in July 2014 (Doc. 24.1

at~~

7-9). In these motions, Mr. Hanis sought

to terminate his maintenance modification retroactively to November 2012, when Ms. Friedman
remarried, and Ms. Friedman sought to enforce the Consent Agreement to the extent it purported
to extend Mr. Hanis's maintenance obligation beyond her November 2012 remarriage pursuant
to the agreed-upon payment schedule (Id.

at~~

7-9, 21-22).

On June 9, 2015, the Circuit Court entered Findings of Fact, Conclusions of Law, and
Modification Judgment ("Circuit Court Order") in the divorce proceeding, which included the
following relevant findings:
17. Neither party filed a Motion to Modify the [divorce decree] prior to entering
into the Consent Agreement. Further, neither party filed the Consent Agreement
with the [Circuit] Court or sought judicial approval of the Consent Agreement.
18. The Consent Agreement was never incorporated into or made a part of the
[divorce decree] and, therefore, did not modify [the divorce decree].
19. Inasmuch as the Consent Agreement was not incorporated into the decree, it
may be subject to independent enforcement via a breach of contract action, but is

under the Divorce Decree. This argument lacks merit.
7

not subject to enforcement by [the Circuit Court]. Koster v. Cain, 383 S.W.3d
105, 115 (Mo. App. W.D. 2012).
20. [Ms. Friedman] remarried in November 2012. Pursuant to the [divorce
decree], the maintenance terminated upon her remarriage.

22. The Court does not have authority to determine the parties' rights or enforce
the Consent Agreement by way of a Motion for Contempt and Motion to
Determine Amounts Due and Owing. There is no claim for independent
enforcement of the Consent Agreement via a breach of contract action before [the
Circuit Court] and the [Circuit] Court does not consider such a claim herein.

70. [Ms. Friedman's] Motion for Contempt and Motion to Determine Amounts
Due and Owing are also denied with respect to [Ms. Friedman's] request to
enforce the parties' Consent Agreement. [Mr. Hanis] is obligated to pay the
maintenance originally ordered by the [Circuit] Court in the parties [divorce
decree] until the date of [Ms. Friedman's] remarriage.
(Id.

at~~

17-20, 22, 70).

On August 1, 2016, the Bankruptcy Court entered its Order granting summary judgment
in Ms. Friedman's favor, denying Mr. Hanis's motion for summary judgment, and declaring that
the Business Debts were non-dischargeable in Mr. Hanis's Chapter 7 proceeding (Bankr. Doc.
28). More specifically, the Bankruptcy Court concluded that the Business Debt was "incurred in
the course of a divorce or in connection with a divorce decree or other order of a court of
record," reasoning as follows:
The Divorce Decree provided for the original treatment of the Business Debt. The
Consent Agreement makes numerous references to the Divorce Decree. The fact
that the Consent Agreement was executed a few years after the entry of the
Divorce Decree does not make the Consent Agreement merely a private business
transaction. The debts incurred in the Consent Agreement were incurred in the
course of the divorce.
The facts here are similar to those of [Woosley]. In that case, the bankruptcy court
found that the debts were, in fact, incurred in connection with the divorce for
purposes of § 523(a)(15) based on: (1) explicit mentions of and commonality
8

between the original divorce decree and the subsequent arrangement; (2) the fact
that the "fundamental nature of the debtor's obligation" did not change between
the two agreements; and (3) the equitable considerations implicated by the
exchange of ownership interests in the jointly owned company and reduced
alimony payments. Similarly here, the Consent Agreement makes many
references to the Divorce Decree; the fundamental nature of the [Mr. Hanis's]
obligation remained the same; and the equitable considerations weigh in favor of
determining that the Business Debt was [incurred] in connection with the divorce
([Ms. Friedman] gave up certain interests awarded to her in the divorce and
agreed to lessened maintenance payments, in exchange for being indemnified for
and held harmless from the Business Debt).

ilih at 5-6).
Mr. Hanis timely appealed the Bankruptcy Court's decision (Bankr. Docs. 30, 36-37).
The sole issue now before this Court is whether the Bankruptcy Court erred in determining that
the Business Debts were "incurred in the course of a divorce or in connection with a divorce
decree or other order of a court ofrecord," and thus were non-dischargeable under§ 523(a)(l5).
Arguments of the Parties

In this Court, Mr. Hanis reiterates his argument that he did not incur the Business Debts
in connection with the parties' divorce (Doc. 5 at 18-27). He contends that the Business Debts
are unrelated to the Divorce Decree because they "did not arise out of the divorce proceedings"
and "they were not created by the Divorce Decree or related orders of a court of record" @ at
20). Mr. Hanis continues to emphasize the fact that nearly two years elapsed between the Circuit
Court's entry of the Divorce Decree and the parties' execution of the Agreements (Id. at 20, 2324, 26).
Mr. Hanis acknowledges that the Consent Agreement makes numerous references to the
Divorce Decree and refers to the parties' divorce proceeding by style and case number. However,
in his view, the Bankruptcy Court nevertheless erred by treating the Consent Agreement's
references to the Divorce Decree as evidence of a connection between the two documents
9

because "[m]ere reference to the [Divorce] Decree, without modifying its terms, does not create
a marital debt, particularly where the Business Debt was not an obligation of the Debtor created
by the Divorce Decree" (Id. at 22). He further asserts that "the express purpose of' the Consent
Agreement was to release and indemnify Ms. Friedman from the Business Debts (MJ.
Before this Court, Mr. Hanis additionally argues that the Bankruptcy Court erred in
finding the Business Debts non-dischargeable under § 523(a)(l5) in light of the Circuit Court
Order, which held that the Consent Agreement was not enforceable in the parties' divorce
proceeding iliL. at 21-22). According to Mr. Hanis, the Circuit Court "could not have stated more
emphatically that it did not consider this Business Debt to be enforceable in connection with the
divorce proceedings, bringing the debt squarely outside of Section 523(a)(15)" (Id. at 21).
In response, Ms. Friedman urges affirmance (Doc. 8). First, she argues that § 523(a)(l 5)
requires only that the Business Debts were incurred "in connection with" the divorce decree, not
that they were "created by" the Divorce Decree, as Mr. Hanis appears to contend (Id. at 7-8). Ms.
Friedman further argues that the passage of time between the Circuit Court's entry of the
Divorce Decree and the parties' execution of the Agreements is irrelevant to the issue of whether
Mr. Hanis incurred the Business Debts "in connection with" the Divorce Decree

iliL. at 9).

She

also disagrees with Mr. Hanis's characterization of the Consent Agreement as merely a business
transaction, noting that it also addressed the subject matter of the Divorce Decree (Id. at 9-10).
Finally, Ms. Friedman argues that the Circuit Court's conclusion that the Consent Agreement
was not enforceable in the divorce proceeding is not relevant to the issue before this Court (Id. at
10-11). For the following reasons, the Court affirms the decision of the Bankruptcy Court.
Discussion

1. Standard of Review
10

When a debtor appeals a bankruptcy court's order to a district court, the district court
reviews the bankruptcy court's legal conclusions de novo and its findings of fact for clear error.
In re Tasic, No. 4:13-CV-00479-ERW, 2013 WL 2425133, at *3 (E.D. Mo. June 4, 2013) (citing
In re O'Brien, 351 F.3d 832, 836 (8th Cir. 2003)). Issues committed to the bankruptcy court's
discretion are reviewed for an abuse of that discretion. Id. (citing In re Zahn, 526 F.3d 1140,
1142 (8th Cir. 2008)). The bankruptcy court abuses its discretion if it fails to apply the proper
legal standard or bases its order on findings of fact that are clearly erroneous. Id. (citing Zahn,
526 F.3d at 1142). At oral argument, the parties disagreed as to which standard of review should
apply in this appeal. The Court notes that, in light of the undisputed facts of this case, the result
would the same under either a de novo review or a review for an abuse of the bankruptcy court's
discretion.
2. Summary Judgment Standard
The instant case was decided on a motion for summary judgment pursuant to Federal
Rule of Civil Procedure 56(a) and Federal Rule of Bankruptcy Procedure 7056. The bankruptcy
court may grant a motion for summary judgment if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law." Fed. R. Civ. P. 56(a); see also Celotex Com. v. Citrate, 477 U.S. 317, 322 (1986);
Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011); cf. In re Turner Grain
Merch., Inc., 557 B.R. 147, 149 (Bankr. E.D. Ark. 2016) (Rule 56 applies in adversarial
bankruptcy proceedings). The substantive law determines which facts are critical and which are
irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

11

A moving party always bears the initial burden of informing the court of the basis of its
motion. Celotex Com., 477 U.S. at 323. Once the moving party discharges this burden, the
nonmoving party must set forth specific facts demonstrating that there is a dispute as to a
genuine issue of material fact, not the "mere existence of some alleged factual dispute."
Anderson, 477 U.S. at 247-48. The nonmoving party may not rest upon mere allegations or
denials of his pleading. Id. at 248.
In passing on a motion for summary judgment, the bankruptcy court must view the facts
in the light most favorable to the nonmoving party. Torgerson, 643 F.3d at 1042. The bankruptcy
court's function is not to weigh the evidence but to determine whether there is a genuine issue
for trial. Anderson, 477 U.S. at 249. "'Credibility determinations, the weighing of the evidence,
and the drawing of legitimate inferences from the facts are jury functions, not those of a judge."'
Torgerson, 643 F.3d at 1042 (quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133,
150 (2000)).
Where parties file cross-motions for summary judgment, each summary judgment motion
must be evaluated independently to determine whether a genuine issue of material fact exists and
whether the movant is entitled to judgment as a matter of law. Husinga v. Federal-Mogul
Ignition Co., 519 F. Supp. 2d 929, 942 (S.D. Iowa 2007). "[T]he filing of cross motions for
summary judgment does not necessarily indicate that there is no dispute as to a material fact, or
have the effect of submitting the cause to a plenary determination on the merits." Wermager v.
Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir. 1983). In determining the appropriateness of
summary judgment, "the relevant inquiry is whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party must
prevail as a matter of law." Bingaman v. Kansas City Power & Light Co., 1 F.3d 976, 980 (10th
12

Cir. 1993) (quoting Anderson, 477 U.S. at 251-52). Here, the parties filed cross-motions for
summary judgment in the bankruptcy court, and there was no dispute as to the material facts.
3. Section 523(a)(15)'s Exception from Discharge under Chapter 7
Qualified individual debtors are generally entitled to discharge of their obligations on
pre-petition debts under Chapter 7 of the Bankruptcy Code. 11 U.S.C. § 727. However,§ 523(a)
excepts certain debts from discharge in bankruptcy. As relevant to this appeal, § 523(a)(15)
provides as follows:
(a) A discharge under [Chapter 7] does not discharge an individual debtor from
any debt-

(15) to a spouse, former spouse, or child of the debtorl41 ... that is incurred by the
debtor in the course of a divorce or separation or in connection with a separation
agreement, divorce decree or other order of a court of record ....
11 U.S.C. § 523(a)(l5). As the creditor, Ms. Friedman bears the burden of proof that the
Business Debts fall within the parameters of§ 523(a)(l5). See In re Beck, 298 B.R. 616, 622-23
(Bankr. W.D. Mo. 2003). At oral argument, the parties agreed that neither the United States
Supreme Court nor the United States Court of Appeals for the Eighth Circuit has squarely
addressed the issue presently before the Court.
4. The Business Debts are non-dischargeable pursuant to § 523(a)(l 5) because they were
incurred in connection with the Divorce Decree.

4

The issue of whether the Business Debts fall outside the scope of§ 523(a)(15) because
they are not owed "to a spouse, former spouse, or child of the debtor," but are instead owed to a
third-party creditor is not before the Court. See Hanson v. First Nat. Bank in Brookings, 848
F.2d 866, 869 (8th Cir. 1988) (issues not raised in the bankruptcy court or in the district court on
appeal are waived); cf. In re Kline, 65 F.3d 749, 750-51 (8th Cir. 1995) (concluding that a debt
owed directly to a third party was non-dischargeable under a related subsection of § 523(a)
notwithstanding statutory language requiring that the debt be payable to a "spouse, former
spouse, or child of the debtor").
13

The Court concludes that Mr. Hanis incurred the Business Debts in connection with the
Divorce Decree. First, Mr. Hanis incurred a new, post-divorce debt to Ms. Friedman by agreeing
to indemnify her and to hold her harmless on the Business Debts. See In re Clark, 207 B.R. 651,
657 (Bankr. E.D. Mo. 1997) ("The obligation that is not dischargeable in these situations is a
debtor's responsibility to hold his non-debtor, ex-spouse harmless."); see In re McKinnis, 287
B.R. 245, 250 (Bankr. E.D. Mo. 2002) (citing In re Burns, 149 B.R. 578, 582 (Bankr. E.D. Mo.
1993) (an obligation to hold a former spouse harmless for marital debts is an obligation to a
former spouse); cf. In re Marble, 426 B.R. 316, 319 (8th Cir. BAP 2010).
The Court further concludes that Mr. Hanis incurred this new debt "in connection with"
the Divorce Decree because the clear, unambiguous terms of the Agreements reflect that the
parties intended them to modify various terms of the Divorce Decree. 5 More specifically, the
Consent Agreement refers to the Divorce Decree nine different times. See Woosley, 2010 WL
500423, at *7. Moreover, the parties clearly agreed in the Consent Agreement to alter the amount
and duration of Mr. Hanis's maintenance obligation under the Divorce Decree: the Consent
Agreement explicitly stated that Mr. Hanis and Ms. Friedman "desire[d] to enter into [the
Consent Agreement] in order to modify by consent [Mr. Hanis's] maintenance obligation to [Ms.
Friedman]" and that "[Mr. Hanis's] maintenance obligation to [Ms. Friedman] pursuant to the
[Divorce Decree] shall be modified."
Further, in the Acquisition Agreement, the parties agreed to modify their ownership
interests in M&M with Mr. Hanis purchasing Ms. Friedman's interest in M&M consistent with
the Divorce Decree's buyout provision, i.e. for a purchase price that "represent[ed] the larger

5

The Court offers no opinion on the issue of whether the Agreements were effective to
modify the Divorce Decree or any of its non-modifiable mandates under Missouri law because
such a decision is not necessary to resolve the issue before the Court in this appeal.
14

number between three times the last 12 months of revenue and 50% of the agreed upon value of
M&M." Significantly, Mr. Hanis's agreement to indemnify Ms. Friedman and to hold her
harmless on the Business Debts was also consistent with the Divorce Decree's buyout provision,
which required the purchasing spouse to absolve the selling spouse of any and all liability on the
Business Debts. The Acquisition Agreement further modified the terms of the Divorce Decree by
releasing Ms. Friedman from the requirement that she continue to operate M&M until Mr.
Hanis's maintenance obligation terminated.
The Court disagrees with Mr. Hanis's assertion that the Business Debts fall outside the
scope of§ 523(a)(15) because they were not created by and did not arise out of the Divorce
Decree. Section 523(a)(15) does not require that a debt be created by or arise out of the Divorce
Decree. While debts that are created by the explicit terms of a divorce decree certainly fall within
the scope of§ 523(a)(15), the plain language of§ 523{a)(15) also includes debts that are incurred
"in connection with" a divorce decree. As such, the relevant inquiry for the Court is not whether
the Business Debts were created by, or even arose out of, the Divorce Decree. Rather, the issue
before the Court is whether Mr. Hanis incurred the Business Debts "in connection with" the
Divorce Decree.
The Court also is not persuaded by Mr. Hanis's argument that the Consent Agreement's
"mere reference to the Divorce Decree without modifying it" was insufficient to bring the
Business Debts within§ 523(a)(15)'s scope. The Consent Agreement does not merely reference
the Divorce Decree as Mr. Hanis represents. To the contrary, the Consent Agreement's multiple
references to the Divorce Decree were neither inadvertent nor incidental. Not only does the
Consent Agreement refer to the Divorce Decree nine different times, it explicitly states that the
parties intended to modify Mr. Hanis's maintenance obligation under the Divorce Decree, and its
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clear terms expressly state that the Divorce Decree was to be modified by altering the amount
and duration of Mr. Hanis's maintenance obligation. In the Acquisition Agreement, the parties
further agreed to alter their respective interests in M&M, and to relieve Ms. Friedman of her
obligation to operate M&M until Mr. Hanis's maintenance obligation terminates.
To the extent that Mr. Hanis implies that the sole purpose of the Consent Agreement was
to provide Ms. Friedman with indemnification from the Business Debts, the Court disagrees. The
Consent Agreement clearly includes two express purposes. First, as Mr. Hanis accurately notes,
the Consent Agreement reflects the parties' intent that he would agree to indemnify Ms.
Friedman from the Business Debts as part of his purchase of her interest in M&M. However,
contrary to Mr. Hanis's view, the Consent Agreement also included a second express purpose:
to modify Mr. Hanis's maintenance obligation as was previously set forth in the Divorce Decree.
Further, the Court is not persuaded by Mr. Hanis's characterization of the Agreements as
merely providing for a buyout of one business associate's share of a jointly-owned business by
another business associate who happened to be a former spouse. The Court can certainly
envision a circumstance where business partners who also happen to be former spouses enter into
a purely business agreement which would not be "in connection with" their divorce decree and
thus would fall outside the scope of§ 523(a)(15). However, this case does not present such a
situation. While the Court is mindful of the fact that nearly two years elapsed between the entry
of the Divorce Decree and the parties' execution of the Agreements, Mr. Hanis and Ms.
Friedman were not simply business partners who happened to be former spouses, and the
Agreements did not call for a business transaction that was unrelated to their divorce. Cf. In re
Tracy, No. 06-40044-JDP, 2007 WL 420252, at *3 (D. Idaho Feb. 2, 2007) (debts created by a
state court money judgment fell outside the scope of § 523(a)(15) because they arose
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approximately a year and a half after the parties' completed their divorce and were based on
subsequent dealings between the parties unrelated to the dissolution of their marriage). The
passage of time may be a factor for consideration in deciding whether a debt was incurred in
connection with a debtor's divorce decree, but it certainly is not determinative. As more fully
discussed above, Mr. Hanis's agreement to indemnify Mr. Friedman and to hold her harmless on
the Business Debts was made in conjunction with his purchase of her interest in M&M pursuant
to the Divorce Decree's buyout provision and in exchange for modification of his maintenance
obligation under the Divorce Decree; it was therefore made "in connection with" the Divorce
Decree, notwithstanding the fact that the transaction took place well after the parties had
finalized their divorce. Cf. In re Candela, No. 11-19030, 2011WL6010245, at *5 (Bankr. D.N.J.
2011) (citing In re Crosswhite, 148 F.3d 879, 882 (7th Cir. 1998) and 4 COLLIER ON
BANKRUPTCY§ 523.23) (debts arising out of property settlement agreements are within the ambit
of section 523(a)(15)).
Finally, the Court notes that the Circuit Court's decision not to enforce the Consent
Agreement when it ruled on the parties' motions to modify the Divorce Decree does not change
the result. Notably, the Circuit Court did not conclude that the terms of the Consent Agreement
were unenforceable as a matter of law. Rather, it noted that-because the Consent Agreement
had not been incorporated into the Divorce Decree-the parties' consensual modification of Mr.
Hanis's non-modifiable maintenance obligation in the Consent Agreement was unenforceable in
the divorce proceeding. As such, the Circuit Court concluded that, under Missouri law, the
Consent Agreement's modification of the maintenance obligation was instead enforceable only
in a separate action for breach of contract. See Koster v. Cain, 383 S.W.3d 105, 115 (Mo. Ct.
App. 2012).
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Therefore, having considered all the facts and circumstances of this case and as discussed
more fully above, the Court concludes that Ms. Friedman has met her burden of establishing that
Mr. Hanis incurred a debt "in connection with" the Divorce Decree when he agreed to indemnify
Ms. Friedman and to hold her harmless on the Business Debts, notwithstanding the fact that the
Agreements were executed well after the parties' Divorce Decree had been entered.
Conclusion

For these reasons, the Court concludes that the Bankruptcy Court correctly denied Mr.
Hanis's motion for summary judgment, granted Ms. Friedman's motion for summary judgment,
and declared the Business Debts non-dischargeable, pursuant to 11 U.S.C. § 523(a)(15), in Mr.
Hanis's Chapter 7 bankruptcy proceeding. Accordingly,
IT IS HEREBY ORDERED that the judgment of the United States Bankruptcy Court

for the Eastern District of Missouri is AFFIRMED.
A separate Judgment accompanies this Order.

Dated this 8th day of August, 2017.

A.ROSS
TED STATES DISTRICT JUDGE

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