Risks of joint bank accounts


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A joint bank account can be convenient for handling day-to-day transactions or taking care of loved ones. But opening a joint account, whether with family members or business associates, has potential pitfalls, as well.

Although pooling your money may imply love or trust, the consequences of having a shared account can range far beyond what both parties expect, especially if things go sour.

Here’s what to know to make sure you don’t end up regretting a joint account.

Rights of ownership

Drama most often crops up during marital discord, but the same drawbacks apply to joint banks accounts held by:

  • Minor children and parents.
  • Elderly parents and adult children.
  • Cohabiting couples.
  • Roommates.
  • Business partners.

“You can have a joint account with anyone in the world, but once we’re jointly on that bank account, once we sign the papers, both of us have 100 percent rights to that account,” says Sandra M. Radna, a family law attorney based in New York.

No matter who started the account or who puts in more money, she says, “in the eyes of the law, you’re equal holders.”

Account co-owners enjoy the right to spend, give away or transfer funds to other accounts, without the consent or knowledge of other account holder(s). In many cases, the “wronged” party can get back some of the money, but legal action is required.

“There is no protection for either party with a joint account,” says Brent Adams, president at Private Bank of Decatur in Georgia. “There is nothing (the bank) can do to protect either party if the other person comes in and withdraws all the money.”

Rights of survivorship

Most joint accounts carry rights of survivorship.

“So, if one of the joint holders dies, there is nothing the surviving joint owner has to do to get that money,” Radna says.

In most cases, a joint account holder’s rights to the funds in the account supersedes what’s written in a will, says Randall Kessler, a divorce attorney based in Atlanta and past chairman of the American Bar Association’s Family Law Section.

That can lead to problems for an account holder’s heirs down the line, Kessler says.

“If Mom had a business manager or a bill-paying assistant that had joint title on the account, and they can take it for whatever reason,” Kessler says, “they can say, ‘Mom owed me money for back pay,’ or they can just say, ‘It’s in my name; I’m taking it.’ And that’s kind of a hard pill to swallow for the children.”

Risk of tax triggers

If someone other than a spouse is co-owner of a bank account while all parties remain alive, additional tax issues may arise.

Annual exclusions apply to gifts to each donee, according to the IRS. There is an annual exclusion of $15,000 for 2018 and 2019. Generally, the donor is responsible for paying the gift tax, but under special arrangements the donee may agree to pay the gift tax instead. Always consult your tax professional for your individual circumstances. The IRS defines a gift as any transfer to an individual. This transfer can be either direct or indirect, where full considerations — which is measured in money or money’s worth — isn’t received in return.

Risk of debt collection, credit damage

Joint bank accounts lay open to:

  • Overdraft charges.
  • Debt collection.
  • Liens.
  • Judgments or garnishments.
  • Divorces.

Even in cases where joint account holders are not married (or perhaps not even related), what happens in one person’s life can affect the other’s money.

Here are a few examples:

  • An elderly parent puts an adult child as an account co-owner. If that adult child gets divorced, the account can be considered part of the adult child’s assets, even though the implicit understanding is that it’s the parent’s money.
  • A grandparent opens a joint bank account with a grandchild to save for college, but sometime later, the grandparent faces a lawsuit or goes bankrupt.
  • Either party uses the account as collateral for a loan, then defaults.

“In most cases, if it’s with a child or an elderly relative or maybe a casual business associate, we think there are much better ways to structure your assets than just to have a joint bank account with those people,” Sullivan says.

Other options

The motivation for joint bank accounts is often rooted in “wanting to take care” of someone — just in case. But you can do essentially the same thing in other ways.

  • For spouses or other people you want as direct beneficiaries: Set up the accounts to “payable on death.”
  • For elderly parents, spouses or family members: Set up durable powers of attorney, which give access to accounts in certain circumstances (illness, incapacitation, etc.).
  • For minor children: Set up accounts in trust or UTMA — Uniform Transfer to Minors Act — where you can serve as custodian, but the money is legally the child’s.