A joint checking account can seem like the answer to a lot of problems.
Whether you’re trying to share an account to run a household with a significant other, a small business or the financial affairs of a loved one in distress, joint accounts can make it easy to quickly access a pool of funds and get things done.
But joint checking accounts also can be a source of significant stress for your finances and relationships, says Randall Kessler, a divorce attorney based in Atlanta and past chair of the American Bar Association’s Family Law Section.
“Whatever you put into a joint account, the other side can take out,” Kessler says.
That easy access means that if 1 party misuses the account, there’s not much anyone can do to stop them.
“You know the saying, ‘The road to hell is paved with good intentions,'” Kessler says. “It’s a risk. If you take a risk and you sign on to a joint account and it doesn’t work out, at least know ahead of time that that was part of the risk.”
Credit at risk
Those risks can also include getting blackballed by banks, says Mary Jo Katras, a program leader at the University of Minnesota Extension’s Center for Family Development.
Not all couples are all-in on joint checking
- 42% of those in relationships and who have joint bank accounts also have individual accounts.
- 39% of joint account holders don’t use their accounts to pay their rent or mortgage.
- 18% of those living with partners don’t have a joint checking account at all.
Source: TD Bank Pulse Survey
“If your partner clears out your joint bank account and goes on a shopping spree and checks bounce, you both are responsible,” Katras says. “Both names on the account are reported to ChexSystems if there is a history of account mishandling.”
You may be able to dispute that black mark on your credit, she says, but otherwise, the information will stay in the ChexSystems database for 5 years.
This is the banking version of a credit bureau. Financial institutions report individuals who “mishandle” checking or savings accounts. Reporting may include check overdrafts or check fraud. If your name finds its way into the ChexSystems database, you may not be able to open a bank account.
Here are 4 steps to take before signing up for a joint checking account to help ensure your decision doesn’t end in disaster.
1. Ask yourself a lot of questions
The last thing you want to do is enter into a joint account without thinking it through. The 1st and most important question to ask, Kessler says, is: Why do you need it?
If the answer is simply convenience, Kessler says, that may not be good enough.
In most cases, there are other ways to handle taking care of shared household or business bills that offer you more protection than simply dropping all your money in a joint account and trusting the other person to do the right thing, he says.
Another question people need to consider, says University of Minnesota’s Katras: Do you trust your future joint account holder with your money?
“It’s entering them into a very personal part of your life,” Katras says. “You need to understand the different values that someone has around money and spending.”
One way to do that is to take a hard look at that person’s financial past, she says.
“I would really observe someone’s spending habits before I would go into a joint account,” Katras says.
2. Set some ground rules and write them down
Hashing out the details with the other account holder is critical, Katras says.
“You really need to sit down and talk about, ‘OK, what is this account going to be used for, and when and why should someone be withdrawing from this account?'” she says.
Talking about money may be difficult, Katras says, but it’s necessary. After all, if you can’t talk about money before you have an account together, how are you going to deal with it if something goes wrong when real money is on the line?
Once you’ve agreed on some rules, you’ll want to write them down, Katras says.
“Anytime we write things down, we’re better able to stick to them,” she says. “If someone does not follow those rules, then you have that document that you can say, ‘Hey, wait a minute. This is what we talked about.'”
3. Keep an eye on the account
“Trust but verify” isn’t just good advice for international arms reduction deals; it also applies to joint checking accounts.
Kessler recommends keeping a close eye on your statement using a banking app.
“Even though it may be a loved one or a friend that you trust, it’s smart to check the balance for any significant movement,” Kessler says.
Kessler also recommends setting up an alert on the account that notifies all account holders when withdrawals or purchases of a certain size are made.
4. Set up controls and limit your exposure
Depending on whom you’re sharing the account with and what you’re using it for, it may also be smart to put some controls on the account from the get-go, such as a ceiling on the amount of money that can be spent at 1 time, Kessler says.
If all that seems too complicated, there is 1 easy way to protect yourself: Keep a separate checking account for yourself and deposit enough into the joint account to cover only immediate expenses.
“The best way to put a limit on it is not to put too much in there,” Kessler says.