Gabriella Hansen
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
In In re Harshaw, the United States Court of Appeals for the Seventh Circuit held that an arbitration award for contributions to a relationship gave a money judgement to one party, which is a debt dischargeable in bankruptcy. Anne and Donald Harshaw were divorced after 25 years of marriage in 1996.[1] The Harshaws reunited shortly after their divorce, but in 2013 they separated once again.[2] The couple never remarried, so Anne was unable to obtain relief from Donald through the traditional means of a divorce action. Instead, she sued in state court “under equitable theories of express or implied contract, unjust enrichment, and quantum meruit.”[3] Both parties agreed to submit the dispute to binding arbitration. The arbitrator determined Donald was liable to Anne and issued an award in the sum of $435,000, referring to Donald’s retirement accounts and a Qualified Domestic Relations Order.[4] Donald lost his appeal to vacate the arbitration award and commenced bankruptcy proceedings, which raised the question of whether Anne had been awarded a money judgement or an interest in specific property by the arbitrator.[5] If the bankruptcy court determined the arbitration award to be a money judgement, it would be a debt dischargeable in Donald’s bankruptcy proceedings and Anne would not receive the award determined by the arbitrator.[6] However, if the court determined the award to be a specific property interest, it would not be dischargeable in bankruptcy and Anne could still receive the award determined by the arbitrator.[7] When the bankruptcy court ruled in favor of Anne, determining that a property interest had been awarded, which is not dischargeable, Donald appealed to the district court, which reversed.[8] Anne then appealed to the Court of Appeals for the Seventh Circuit.[9] The Seventh Circuit affirmed the district court’s decision, agreeing with its holding that the arbitration award was a money judgment rather than a property interest.
In classifying the arbitration award as a money judgement, the Seventh Circuit looked to the text of the arbitration award, as well as the legal context of Indiana domestic relations law and arbitrators’ authority.[10] Examining the language of the arbitration award, the Seventh Circuit found the statement for the payment of a specific sum of a monetary amount due to be significant in finding the award to be a money judgement, citing cases which held that “any order that requires the payment of a sum of money and states the specific amount due, whether labeled as a mandate or a civil money judgment, is a ‘judgment for money.’”[11] Additionally, under Indiana law, the post-judgement interest the award entitled Anne to applies only to money judgements, providing further reasoning to classify the award as a money judgement.[12] The arbitration award also did not include language conveying the division of property or mandating a source of funds or manner of payment which allowed Donald to choose how he must satisfy the award, providing further evidence of classifying the award as a money judgement.[13]
The Seventh Circuit also addressed policy considerations for the protection of retirement accounts from money judgements, and the issue concerning language in the award that the judgment should be non-dischargeable. The Seventh Circuit held that there was not a clear attempt to contravene public policy through the arbitrator’s authority in the award with respect to Donald’s retirement account.[14] The Seventh Circuit determined that language stating the judgement should not be dischargeable is not controlling, as federal bankruptcy law governs dischargeable and non-dischargeable debts, and accordingly, the award here does not meet any other statutory exceptions to discharge.[15]
In analyzing the arbitration award, the Seventh Circuit considered various factors including the language of the award, Indiana domestic relations law, and the authority of arbitrators.[16] This case presents an unusual fact pattern where bankruptcy law intersects with family and matrimonial law concerning an arbitration award issued in the separation of an unmarried couple, when relief was not available through the usual channel of divorce law.[17] The Seventh Circuit differentiated the language of the award from the actual statutory authority granted to arbitrators to determine the rightful classification of the award.[18] After weighing the text of the award, including the specific amount due by it, the Seventh Circuit found that the award granted a money judgement, not a property interest to Anne Harshaw in Donald Harshaw’s retirement account, and accordingly the money judgement was dischargeable in Donald’s bankruptcy.[19]
[1] Harshaw v. Harshaw (In re Harshaw), 26 F.4th 768, 770 (7th Cir. 2022).
[2] Id.
[3] Id.
[4] Id. Paragraph 55 of the arbitration award states, “[t]he arbitrator finds, based upon the above findings and conclusions, that the plaintiff, Elizabeth A. Harshaw, is hereby awarded the sum of Four Hundred Thirty-Five Thousand Dollars & 00/100 ($435,000.00), plus post-judgment interest.” Id. at 772.
[5] Id. at 770.
[6] Id.
[7] Id.
[8] Id. at 771.
[9] Id.
[10] Id.
[11] Id. at 772 (quoting Hilliard v. Jacobs, 916 N.E.2d 689, 694 (Ind. Ct. App. 2009)).
[12] See id.; Ind. Code § 24-4.6-1-101; see also Hilliard, 916 N.E.2d at 694.
[13] Harshaw, 26 F.4th at 773–74. (“[The arbitration award] does not identify a required source of funds or manner of payment. It instead lists options for satisfying the obligation to pay $435,000. Those options include the ‘assignment of his pension and/or retirement benefits,’ a ‘Qualified Domestic Relations Order’ and/or ‘by payment from Don to Anne in any other manner acceptable to both parties.’”).
[14] Id. at 775.
[15] Id. at 775–76; see 11 U.S.C. § 523(a).
[16] Id. at 771.
[17] Id. at 770.
[18] Id. at 775.
[19] Id. at 770.