Short v. Short, 00-15150

• Decision Date: 15 November 2000
• Docket Number: No. 00-15150,00-15150
• Citation: 232 F.3d 1018
• Parties: (9th Cir. 2000) In re LAWRENCE MICHAEL SHORT, Debtor. LAWRENCE MICHAEL SHORT, Appellant, v. PAMELA SHORT, Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1018

232 F.3d 1018 (9th Cir. 2000)

In re LAWRENCE MICHAEL SHORT, Debtor.

LAWRENCE MICHAEL SHORT, Appellant, v. PAMELA SHORT, Appellee.

No. 00-15150

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted October 4, 2000

Filed November 15, 2000

[Copyrighted Material Omitted]

Steven G. Mikelich, Steven G. Mikelich, Inc., Sonora, California, for the defendant-appellant.

Allen R. Mitterling, Modesto, California, for the plaintiff-appellee.

Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit. BAP No. EC-99-01037-BaMeR

Baum, Meyers and Russell, Judges, Presiding

Before: Alfred T. Goodwin, Arthur L. Alarcon and M. Margaret McKeown, Circuit Judges.

ALARCON, Circuit Judge:

Lawrence Short appeals from the judgment of the Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") affirming the decision of the bankruptcy court declaring nondischargeable a debt he was ordered to pay in a judgment of dissolution entered in a California state court. He contends that the debt did not come within the provisions of 11 U.S.C. S 523(a)(15) which excludes debts incurred by a debtor in connection with a divorce decree because it was a separate property debt incurred by him prior to the marriage. Mr. Short also asserts that the district court erred in holding that the income of a person who lives with a debtor in a romantic relationship (hereinafter a "live-in romantic companion") can be considered in calculating a debtor's ability to pay a debt incurred in a divorce or dissolution decree.

We conclude that the debt is nondischargeable because it was incurred by the debtor as part of the division of property in the course of a judgment of dissolution. We also hold that the income of a live-in romantic companion may be considered in determining a debtor's ability to pay a debt incurred in a judgment of dissolution pursuant to S 523(a)(15)(A) whenever the debtor and his or her live-in romantic companion are economically interdependent or form a single economic unit.

I

Pamela Short and Mr. Short began living together in the spring of 1992. At that time, Mr. Short was the sole owner of a trucking business. Ms. Short agreed to lend $50,000 to Mr. Short so that he could pay off obligations he had incurred as the result of a prior divorce, and to purchase another truck.

Ms. Short borrowed the money requested by Mr. Short from the El Capitan National Bank in Sonora, California, using a parcel of land known as 10955 Laru Lane, Sonora, California, and a double-wide mobile home as collateral. On May 5, 1992, she loaned Mr. Short $2,000 to make a down payment on a 1993 Peterbilt truck. Between that date and July 27, 1992, Ms. Short loaned Mr. Short an additional $48,663.98 to complete the purchase of the truck.

The parties were married on May 16, 1992. On July 1, 1992, they purchased a house located at 16535 Caddo Circle in Sonora from Mr. Short's parents. Title to the residence was taken in the names of both Mr. and Mrs. Short. Ms. Short paid the loan points, closing fees, and one installment payment. She also loaned Mr. Short money to pay off his credit card debts.

On July 27, 1992, the day the Peterbilt truck was delivered, Ms. Short entered into a post-nuptial agreement with Mr. Short. The purpose of the agreement was to memorialize Mr. Short's obligation to repay the money she had loaned him. The post-nuptial agreement was prepared by the debtor's lawyer who also represented him in the bankruptcy proceedings and before this court. Ms. Short was not represented by counsel in the negotiation of the agreement.

The post-nuptial agreement provided that the Caddo Circle residence, "notwithstanding the form of conveyance by which the property was taken or acquired," and Mr. Short's interest in his trucking business, would be his separate property. The parties agreed that Ms. Short's mobile home and the Laru Lane parcel would be her separate property. If, however, the marriage lasted more than three years, the parties agreed that these properties would become community property.

The post-nuptial agreement also provided that Mr. Short's obligation to repay $50,000 to Ms. Short was incurred prior to their marriage and was the separate property of Ms. Short. The agreement contains the following provision:

The parties agree that if the marriage lasts more than three years, that as of May 1995 the $50,000 obliga tion will be canceled. However, if the parties sepa rate or divorce prior to the three year anniversary of their marriage, then Mr. Short promises to pay to Mr. Short [sic] the sum of $50,000 with no interest the minimum payment of $500 per month until such time as it has been repaid.

A few weeks after the post-nuptial agreement was executed, Mr. Short and Ms. Short separated on August 23, 1992. Mr. Short filed for a dissolution of the marriage. A judgment of dissolution was entered on June 3, 1993. The parties stipulated to the terms of the decree of dissolution regarding the division of property. The stipulated judgment awarded the Caddo Circle property and the trucking business to Mr. Short. The Laru Lane property was awarded to Ms. Short. The judgment also divided the furniture and directed Mr. Short to deliver an antique dresser to Ms. Short as her separate property. The Malibu Ski Boat and trailer were awarded to Ms. Short. Both parties waived spousal support.

The judgment further provides that "[t]he stipulation as agreed upon by the parties and set forth in this judgment does hereby supersede the Post Nuptial Agreement and becomes the agreement of the parties. The Post Nuptial Agreement is hereby null and void."

The stipulated judgment contains the following recitation regarding Mr. Short's obligation to Ms. Short:

During the marriage, the respondent loaned the peti tioner certain sums of money. Further, the parties have agreed to deduct one half of the value of the above mentioned boat, $3[,]750[.]00 from the amount of the loan, and previous payments that have been made by the petitioner to the respondent in the sum of $4,800. Thusly, the petitioner owed to the respondent the principal sum of $41,450. This amount will bear interest at the rate of 8.469% per annum simple interest, said interest commencing on said principal amount on May 15, 1993. The peti tioner shall pay the sum of $600 per month to the respondent until such time as the loan is paid. The loan is an unsecured debt.

In 1997, Mr. Short entered into a romantic relationship with Pamela Slover. They became live-in romantic companions in June of that year in the Caddo Circle residence. Mr. Short made his last payment to Ms. Short in the same month. Mr. Short purchased a new automobile for $35,173.20 on June 15, 1997.

Mr. Short filed a bankruptcy petition under Chapter 7 on January 23, 1998. At the time of the filing, Mr. Short had reduced the debt owing to Ms. Short to $23,525.62. In addition, $1,124.76 in interest had accrued from Mr. Short's last payment until the date of the petition. On April 27, 1998, Ms. Short filed a complaint in the bankruptcy court for a determination whether the debt pursuant to the stipulated judgment was nondischargeable under 11 U.S.C. S 523(a)(15). On December 31, 1998, the bankruptcy court found that Mr. Short's debt to Ms. Short was nondischargeable.

The court concluded that Mr. Short's debt was "incurred in connection with the parties' divorce" and that Mr. Short had the ability to pay because "it is appropriate to consider both the debtor's and [Ms.] Slover's income and expenses to determine whether the debtor can afford to repay his debt to [Ms. Short]."

Mr. Short and Ms. Slover entered into a business relationship in late 1997. In connection with their business relationship, Ms. Slover leased a truck and Mr. Short drove the truck. Ms. Slover was paid the monthly gross for the hauls made by Mr. Short. Ms. Slover did not pay Mr. Short a salary. Instead, she paid his monthly living expenses. Mr. Short estimated his living expenses at $2,667.53 and that he received $200 per month in spending money. Further, Ms. Slover took money out of the business at her discretion. Over a ten-month period, Slover grossed about $94,233.91. Short testified that Ms. Slover's monthly income was $1,775 and his monthly income was $2,667.53. Their monthly household expenses were estimated at $4,177.53. Taking these facts into consideration, the bankruptcy court held that Mr. Short failed the "relative harm test" of section 523(a)(15)(B), requiring the debtor to show that the benefit of discharge to the debtor exceeds the detriment of discharge to the former spouse.

Mr. Short appealed to the BAP. Before that court, Mr. Short asserted that the bankruptcy court applied an incorrect legal standard in declaring that the debt was incurred in the course of a divorce proceeding. He further argued that the bankruptcy court misapplied S 523(a)(15)(A) by including the income of Ms. Slover, his live-in romantic companion, in calculating his ability to pay the debt. The BAP unanimously affirmed the bankruptcy court's order on December 16, 1999. The BAP held that the record showed that the debt was incurred in the course of a divorce proceeding. The BAP also determined that, "in light of the debtor's living and employment arrangement with Ms. Slover . . . the bankruptcy court did not err when it considered the income of Ms. Slover in determining that the debtor had the ability to pay. " Mr. Short timely appealed to this court on January 13, 2000.

II

Mr. Short maintains that the BAP erred by affirming the bankruptcy court's judgment that his debt to Ms. Short was nondischargeable. Mr. Short argues that his debt to Ms. Short was not "incurred in the course of a divorce or separation," as S 523(a)(15) requires.¹ A bankruptcy courts's rulings on appeal from the BAP are reviewed de novo. See Mitchell v. Franchise Tax Bd. of California (In re Mitchell), 209 F.3d 1111, 1115 (9th Cir. 2000). We conduct de novo...