The Risks of Joint Bank Accounts

The Risks of Joint Bank Accounts

What is a joint bank account?

Joint bank accounts are accounts at a financial institution where two or more people have equal ownership and rights over the same account. The joint account holders can deposit, withdraw, or handle the funds in the account equally.

How a joint bank account works

Each person on a joint account shares equal access to the funds in the account and is responsible for all the transactions made. Most of the time, unless it is laid out in the account agreement, all account holders can make transactions without the consent of the other account holders.

It may be possible to specify that the consent of all joint account holders is required to access and handle funds in the account.

In most cases, joint bank accounts include the right of survivorship. This means that if one of the account holders dies, the surviving account holder becomes the full owner of the account. The would then have the right to deposit, withdraw, and handle with the funds in the account without any other consent needed.

In some cases, however, this could be contested by others who think they have an interest in, or right to, the money in the account through an inheritance. This challenge could lead to a delay in the surviving account holder being able to get access to the funds in the account.

Reasons to set up a joint bank account

There are a number reasons why a person would open a joint account with others. As an example, a married couple may set up a joint bank account to pay for regular expenses such as mortgage and car payments or take care of other joint expenses. This is one of the most common uses of joint bank accounts.

Another example is for someone to get help from family members or friends to pay expenses and manage their finances. This is often the case for those with health conditions or mobility issues that make it difficult for someone to manage their finances on their own.

A third example is when a person sets up a joint bank account with a family member, such as an adult child, after the death of a spouse who used to deal with the finances.

If you are considering setting up a joint bank account it is advised to consult a lawyer, tax accountant or estate planning specialist to make sure the joint account will be the most beneficial way to take care of your needs.  Please contact us for more information and we will be happy to help.

Risks of a joint bank account

Relationship problems

  • You risk the funds in your account being withdrawn or mishandled in a way that you don’t want if the relationship between you and your joint bank account holder deteriorates.
  • Many family and friendship relationships are strained due to disagreements in how finances are to be handled.
  • A joint bank account between a married couple could be claimed in a separation or divorce settlement.  Financial stress is listed as one of the leading causes of divorce.

Control

  • Funds withdrawn may never be recovered once they are taken out of the bank account.
  • Unless clearly stated in your banking agreement, any joint account holder named on the account is able to withdraw funds at any time. They don’t need consent from you, even if most or all of the money in the account was deposited by you.

Issues with creditors

  • As a joint bank account holder you will share equal responsibility for all transactions made through the account.
  • If a joint bank account holder has financial difficulties or declares bankruptcy, creditors could make claims on the funds in the account.

Accountability

  • It is very difficult to hold a joint bank account holder legally accountable for withdrawing money from the bank account. You may have to go to court to challenge the actions of a joint bank account holder and this could be expensive, stressful and time consuming.

Removing someone from a joint bank account

  • The bank may require all people named in the joint bank account to approve the removal of one member from the account.

Consider a power of attorney instead

Setting up a joint bank account may appear to be an efficient option to get help handling your finances but there are a number of risks involved. Consider all the risks and get information about the options available to you before making any final decisions.

A good alternative to a joint bank account is preparing a detailed power of attorney that gives another person or persons the authority to handle your financial affairs. They can help you pay your bills and manage your finances without giving them more control or power than they need.  The attorney can be anyone who is mentally capable of making decisions for you. Don’t let the word “attorney” confuse you, this does not need to be a lawyer.

A power of attorney document can restrict what your attorney is permitted to do. A joint bank account, does not limit what your joint account holder can do with the money in the account, unless special arrangements have been made.

There are also procedures in place to hold an attorney accountable if they mishandle your finances or do not manage your money the way that you want them to. As stated above, it is very difficult to hold a joint bank account holder accountable for the misuse of funds in a joint bank account.


Disclaimer: This article provides information only and is not intended to confer legal or financial advice or opinion. If you have any further questions please consult a lawyer or accountant. Please note as well that many of the statements herein are general principles which may vary on a case by case basis.