## Facts

- Carole Anne Mitchell and William Mitchell married in 1954 and moved to Arizona in 1958.
- During the marriage, William became a certified public accountant and, in 1975, formed an accounting partnership, Mitchell Hardy.
- In 1979, the partners executed a written partnership agreement; Carole also signed it as a consenting spouse.
- The agreement included a provision stating that no value would be placed on the firm’s goodwill, drafted in the context of partner withdrawal and internal firm accounting.
- In the dissolution proceeding, the trial court received expert testimony and valued the community’s interest in William’s partnership interest, including goodwill, at approximately $150,000 and divided the property accordingly.
- The court of appeals reversed, concluding that goodwill in the professional partnership was not a divisible community asset and that the wife’s signature on the agreement barred her goodwill claim.
- The state supreme court granted review.

## Issues

1. Whether goodwill of a professional partnership developed during marriage is a community property asset subject to valuation and division at dissolution.
2. Whether a partnership agreement clause assigning no value to goodwill, signed by the non-partner spouse, eliminates or waives the spouse’s community claim to goodwill in dissolution.
3. Whether the trial court’s goodwill valuation, based on expert testimony, was impermissibly speculative or clearly erroneous.

## Decision

- The supreme court reversed the court of appeals and upheld the trial court’s inclusion and valuation of professional-partnership goodwill as community property.
- The court held that goodwill of a professional practice developed during marriage is a community asset subject to division, regardless of whether the practice is organized as a corporation or partnership.
- The court held that the partnership agreement’s “no goodwill” provision did not negate the community’s interest in goodwill for marital dissolution purposes, and the wife did not waive her claim by signing the agreement.
- The court declined to disturb the trial court’s valuation, finding it supported by expert testimony and the record.

## Legal Principles

- Goodwill of a professional practice created during marriage is a property interest and, in a community-property regime, is a community asset subject to valuation and equitable division upon dissolution.
- The existence of goodwill does not turn on the business form; partnership and corporate forms are treated equivalently for community-property characterization of goodwill.
- Contract provisions allocating goodwill value for internal partnership purposes (e.g., withdrawal or retirement accounting) do not, without a clear and valid marital-property agreement, alter the community character of goodwill in dissolution.
- A claimed waiver or forfeiture of community property rights requires a clear showing consistent with governing requirements for marital agreements; a spouse’s signature on a business agreement, by itself, is insufficient absent such showing.
- Trial-court goodwill valuations grounded in competent expert evidence and accepted valuation methods will be upheld on review absent clear error.

## Conclusion

The Arizona Supreme Court held that goodwill in a professional accounting partnership earned during marriage is divisible community property and that a partnership agreement clause assigning no value to goodwill, even if signed by the non-partner spouse, does not eliminate the spouse’s community interest in goodwill in a marital dissolution; the trial court’s goodwill valuation was therefore reinstated.


Mitchell v. Mitchell, 152 Ariz. 317, 732 P.2d 208 (Ariz. 1987)