## Facts

- Robert K. Mitchell and Carole Anne Mitchell married in 1954 and moved to Arizona in 1958.
- Robert became a licensed CPA and developed an accounting practice that later operated as the partnership Mitchell & Hardy (formed 1975).
- In 1979, the partners adopted a written partnership agreement, signed by Carole, stating that “no value be placed upon any Goodwill of the firm” and that “no valuation shall be attempted” for purposes of determining a partner’s interest.
- The agreement also provided for payments to a partner upon retirement or death that could exceed tangible assets and accounts receivable, including a share of net profits for a limited period.
- Carole primarily served as a homemaker and was not employed outside the home for most of the marriage.
- In dissolution proceedings, the trial court valued the community’s interest in the partnership at $150,000, expressly including goodwill based on expert testimony.
- The court of appeals reversed, holding the partnership interest must be valued excluding goodwill due to the agreement’s no-goodwill provision.
- The Arizona Supreme Court granted review to address treatment of goodwill in a professional partnership under community property law.

## Issues

1. Whether goodwill of a professional practice operated as a partnership, acquired during marriage, is community property subject to equitable division upon dissolution.
2. Whether the nonprofessional spouse forfeits any community claim to goodwill by signing a partnership agreement stating no value will be placed on goodwill for partnership valuation purposes.

## Decision

- The court held that goodwill of a professional practice conducted as a partnership is property and, if developed during marriage, is a community asset subject to equitable division.
- The court held the wife did not forfeit the community’s goodwill interest by signing the partnership agreement.
- The court rejected the view that the partnership agreement’s no-goodwill clause controlled the characterization and division of goodwill in dissolution.
- The court approved inclusion of goodwill in valuing the husband’s partnership interest and disapproved the contrary court of appeals ruling, leaving the trial court’s valuation intact as supported by evidence.

## Legal Principles

- Professional goodwill is a cognizable property interest; when developed during marriage, it is community property divisible under Arizona dissolution law.
- The form of the professional entity (partnership versus corporation) does not determine whether goodwill exists as a community asset.
- A partnership agreement’s internal valuation rules, including clauses assigning goodwill “no value” for partner buyout purposes, do not extinguish or reduce a spouse’s community property rights in dissolution.
- A spouse’s signature on a business partnership agreement is not, without an express and valid marital-property waiver, a relinquishment of community rights in assets produced during marriage.
- Trial-court valuation of goodwill is fact-dependent and upheld when supported by competent evidence and not clearly erroneous.

## Conclusion

The Arizona Supreme Court recognized goodwill in a CPA partnership as divisible community property and held that a partnership agreement’s no-goodwill clause governing partner relationships cannot defeat a spouse’s community interest in goodwill for dissolution purposes.


Mitchell v. Mitchell, 152 Ariz. 317, 733 P.2d 208 (Ariz. 1987)