Joint Bank Account: The Dangers of Finance Together

When you open a joint bank account with someone, there is a lot to think about. Of course, you have to quickly assess whether or not you think you can trust the person. You also have to think about whether or not you actually need the joint account (what is the need for it). You also have to take into account that the other person’s actions with the money in this account will directly affect you. With all of this in mind, you can probably make an educated decision on whether or not you should get one.

Most people (even couples) don’t ever open a joint bank account for a number of reasons. None of them are trust issues either. There are some true dangers that can be associated with a joint account. Besides, relationships are not always forever. What happens when you two are no longer together or no longer friends? Here are some of the true dangers of opening a joint account:

Ownership Rights of Joint Accounts

Of course, there are benefits of having a joint account. It adds a certain level of convenience (especially if the pair shares expenses). Usually, the real problem stems from marital issues between couples who hold a joint account. There are some other accounts held between people that have some drawbacks as well though. Joint accounts are also commonly held by the following pairs of people:

Child and parent
Cohabiting couples
Roommates
Business Partners

Each of these has its own drawback. The biggest drawback being ownership because, when you sign papers for a joint account, each person has rights to 100 percent of the money in the account. There is absolutely no protection for either party within a joint account.

Survivorship Rights

Another danger with joint accounts is survivorship rights. Survivorship rights for joint accounts are basically as follows: One account holder dies, the other person has rights to all of the money in the account. This means that if a person’s entire worth was tied in that joint account, no surviving family members have rights to money and no one the person was indebted has any right to be paid back. It is technically in the fellow account holder’s name, so they are the only person with rights to it.

Credit Risks

If you open a joint account with someone with a bad credit history, you may have your funds garnished because of debts that they have. The account is also subject to overdraft collection (if the account is linked to their private checking account). If the person goes under some type of judgement or gets a divorce, the funds in that account are subject to garnishment as well (because it is 100 percent yours and 100 percent theirs).

Tax Problems

A joint account also has the risk of causing problems with filing taxes and potential trouble with your money. For instance, although it may not be a gift, when you put money into the account it can be considered as such. This means that the other account holder can take up to $13,000 out of the account (from you) and call it “gift money” on taxes. You can’t prove that you didn’t give them that money because the account is in their name as well.

Options Instead of a Joint Bank Account

Instead of opening a joint bank account, there are some other options. In most cases, joint accounts are opened to help someone else out. However, there are a few ways you can protect the person you are trying to open the account for without opening the account. For spouses that you want as beneficiary, you can set up a “pay upon death” in your personal account. You can also set up powers of attorney. When it comes to a joint account with a child, you can set the account up as a custodian instead of a joint holder. This legally makes the money the child’s and not the parent/grandparent’s.

Of course, any time you are dealing with finances and other people, do your research and protect yourself. If you have any doubt in your mind, keep it separate.

Photo: Flickr: Ken Teegardin