I definitely agree with your H. Pick one and if you have another girl honor the other mom with that spot. That's the sitcky thing about honoring relatives- someone is going to feel left out, but it's better than a ridiculous and made-up spelling. Especially when in the end the name is pronounced the same as a legit name, Katherine and doesn't really honor either person. Maybe you just like Katherine?
ETA: actually, I need to amend my statement about honoring. Karen is actually the Danish form of Katherine. I knew this, not quite sure why I forgot. And you've got the Kath for Kathleen. If you're a literalist (which you clearly aren't given you like Kathren) then it's a stretch but otherwise I think Katherine is actually a really good option.