Risks of Joint Bank Accounts
Kierra Wilson has learned the hard way what can go wrong with a joint bank account.
Wilson, owner of Konnect Support Solutions in South Carolina, claims he lost thousands of dollars when a joint bank account with an ex-husband was not properly closed. She says she didn’t realize that the two owners of the joint account had to confirm its closure, which resulted in communication issues and withdrawals that put the account in the red.
In the end, Wilson says she ended up paying over $ 10,000 for expenses and overdraft fees on the account.
Anyone registered in a common bank account has equal access to funds, regardless of who made the deposits, according to Andrew M. Shaw, attorney with Shaw Divorce and Family Law in New Jersey. Therefore, all owners can potentially “clean up the account without notice to others,” says Shaw.
What is a joint bank account
A common bank account works the same as a regular bank account, but several people have access to it. Each person registered in the account can deposit or withdraw funds there. Joint accounts can be a good way to pay for common expenses, but they also come with an added responsibility (and obligation) for another person’s financial habits.
All listed users are jointly responsible for debts incurred in connection with the account, Shaw says. This means that if someone else in the account overdrafts, you are both responsible for paying off that debt and you are both responsible for the consequences that would result if it were not paid off.
Certain specific tax laws may also apply. “If one owner deposits more than $ 14,000 a year and those funds are withdrawn by the other owner, it can result in a gift tax,” says Shaw.
If an account holder dies, funds or debts will generally revert to the joint account holder.
Should you get a joint account?
Joint accounts are most often opened by married couples, according to Shaw. But there are some situations where longtime couples, business partners or even roommates may decide to open a joint account.
Joint bank accounts can be handy for paying shared bills, but “choose wisely” who you share your account with, warns Allan Borch, founder of DotcomDollar.com, a site that helps bloggers and brands monetize their businesses. For him, a joint bank account was a “totally messy experience”.
For Borch, the consequences went beyond losing money – complications from a shared bank account took a toll on his credit, he says.
Discovered whatever account, joint or not, will not impact your credit if you pay the fees and the negative balance on time. But if you don’t pay, the bank may send collection agencies to try to collect the payment, which will show up on your credit report for seven years.
While there are many nightmare scenarios, sometimes a joint bank account can be the best way to easily maintain finances with a partner. Maintaining a joint account with her husband is a method that “continued for 47 years of marriage,” explains Carol Gee, an Atlanta-based author.
However, creating a joint account required some trial and error and compromise. When she and her husband first opened their account, they made the “big mistake” of writing checks at the same time, she says.
Gee said she was disciplined to pay bills on time, keep good records, and write down the amount of any checks she wrote. Still, there were some growing pains at first when they adjusted to the shared account: “He forgot to tell me he wrote a check or rounded the amount.”
Eventually, they decided that only Gee would write checks, and if her husband needed a check, she would write the amount for him in order to keep their account balanced.
If there is a dispute
How funds are handled in the event of a dispute varies widely from state to state and may also depend on the type of joint account, the relationship between the account owners, the reason the account was opened. and any agreement between the owners on how the funds would be treated, Shaw says.
In a divorce, “it doesn’t matter who deposited the funds,” says Shaw. If the funds were acquired during the marriage, they will be shared between the divorced spouses.
There is “little protection against the potential pitfalls of a joint account,” says Shaw. If funds are embezzled by a co-owner of the account, you can take legal action to recover them, but it can be a lengthy and costly process. There is also no guarantee that you will be successful in recovering the funds.
In general, opening a joint bank account “requires a high level of trust,” says Shaw.