In his June 1985 foreword to Programming the 65816 by David Eyes and Ron Lichty, Bill Mensch expresses his hopes for a 6502-derived 32-bit microprocessor: the 65832. WDC is still thriving, but the ‘832 was apparently never released. What happened to these plans?
In the 1988 Report on the 65c832, Mensch described the 65c832 as a back-burner project with an uncertain timeline:
Since WDC is not a gigantic conglomerate, it has limited resources. If all your manpower, time, and money are going towards the development of the 65c265, you don't have any left for the '832. That's exactly what was happening with the 65c832 as of June, 1988. It's a concept that WDC employees kick around all the time, but on which active work has yet to begin. On the positive side, there's still time to influence WDC's design. On the down side, it will be a couple of years, at least, before the 65c832 is real.
A 51 page preliminary datasheet was then produced in 1990 and updated in 1991, but as far as anyone knows, no silicon ever came of it. As to why, one can only speculate (and a quick google will get you plenty such speculation -- either how great a chip it would have been, or what a failure).
Personally, I think it was the relative failure of the 65816-based Apple IIgs that convinced Mensch to shelve the project. Its key selling point had been that it was both a shiny, new 16 bit machine, and fully compatible with the Apple II line at the same time. But this didn't translate into sales in the way Mensch and Apple had hoped (Apple doing its share here by hobbling the IIgs and promoting the Macintosh).
The report quoted earlier frames the 65c832 as an upgrade to the IIgs. With the IIgs failing, and the 32bit market already largely divided up between Intel and Motorola, it must have been becoming clear in 1991 that a 6502-compatible 32 bit processor, with its performance hampered by compatibility requirements, would not be able to gain a significant market share.
I suppose you have heard of the draft datasheet of the 65832?
Apple was the main customer of the 65816 (for Apple //gs) which needed to be compatible with 6502. They had no need of a 32bits version as Macintosh had already chosen the MC68000 family which is a sounder base as a 32bits CPU.
(Nintendo later also used a 65816 derivative in the SNES)
At some point before 1990 the idea seems to have first surfaced as a 'report' about 6502 chronology and future processors might suggest. It includes not only information about the ghostly 6516, but also information about a 65832 which should have more features than the datasheet showed. There was also no substantial follow up.
The project might have gotten serious in 1989/90 as 65C832. There is a 'preliminary' data sheet of March 1990 and a follow up data sheet dated March 1991. AFAICT the only difference is an added disclaimer.
The CPU described is a 65816 with A/X/Y extensible to 32 bit and a new emulation bit for 16 bit (65816) workings called E16. Like XCE which exchanges E8 and Carry a new XFE instruction should now exchange E8/Carry and E16 with Overflow (*1). Except there is no free code space for a new instruction, so it seems as if this might have been intended as a renaming of XCE - or simply not thought thru. In 32 bit 'mode' A can be 8/16 or 32 bit, X/Y only 8 or 32 bit.
Everything else was kept the same, this includes the hardware interface, so 8 bit data and 24 bit address. Any imagined speed gain could only be realized for a few instructions, often accompanied by quite some overhead for mode and register size switching.
Bottom line: Without substantial advantage there was no real resonance with professional (embedded) users, WDC's main customer base
*1 - The missing SEV instruction in 6502 mode would be no hurdle, as switching to 32 bit mode only needs CLV.