Before You Open a Joint Bank Account, Make Sure You Know the Fine Print

Photo to accompany story about the risks of joint bank accounts. Getty Images

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Kierra Wilson learned the hard way what can go wrong with a joint bank account.

Wilson, owner of Konnect Support Solutions in South Carolina, says she lost thousands of dollars when a joint bank account with an ex-husband wasn’t closed properly. She says she didn’t realize both owners of the joint account had to confirm its closure, which led to miscommunication and withdrawals that sent the account into the red.

In the end, Wilson says she ended up having to pay over $10,000 for the expenses and overdraft fees on the account. 

Everyone who is listed on a joint bank account has equal access to the funds, regardless of who made the deposits, according to Andrew M. Shaw, attorney at Shaw Divorce and Family Law in New Jersey. Therefore, all owners can potentially “clean out the account without notice to the others,” says Shaw. 

What Is a Joint Bank Account

A joint bank account functions the same way as a normal bank account— but more than one person has access to it. Each person listed on the account can deposit or withdraw funds from it. Joint accounts can be a good way to pay for joint expenses, but also come with some extra responsibility (and liability) for another person’s financial habits. 

All listed users are jointly liable for debts incurred in relation to the account, says Shaw. This means if another person on the account overdrafts, you are both responsible for paying back that debt, and you are both liable for any resulting consequences were it not repaid. 

Some specific tax laws might apply, as well. “If one owner deposits more than $14,000 per year and those funds are withdrawn by the other owner, there can be resulting gift tax liability,” says Shaw.

If an owner of the account dies, the funds, or debts, will generally revert to the co-owner of the joint account. 

Should You Get a Joint Account?

Joint accounts are most commonly opened by married couples, according to Shaw. But there are some situations in which long-term couples, business partners or even roommates might decide to open a joint account. 

Joint bank accounts can be convenient 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 cash— the complications of a shared bank account tanked his credit, he says. 

Overdrafts on any account, joint or not, will not impact your credit if you pay the fees and negative balance on time. But if you don’t pay, the bank can send debt collection agencies to try and collect the payment, which will reflect on your credit report for seven years. 

While there are plenty of nightmare scenarios to go around, 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 “has continued throughout 47 years of marriage,” says Carol Gee, an Atlanta-based author.

Setting up a joint account did take some trial-and-error and compromise, though. When she and her husband first set up their account, they made the “big mistake” of both writing checks at the same time, she says. 

Gee said she was disciplined about paying bills on time, keeping good records, and annotating the amount of any checks she wrote. Still, there were some early growing pains as they adjusted to the shared account: “He would forget to tell me he wrote a check or rounded off the amount.”

Eventually, they decided only Gee would write checks, and if her husband needed a check she would write the amount out for him to keep their account balanced. 

If There’s a Dispute

How funds are treated if there’s a dispute varies widely by state, and can also depend on the type of joint account, the relationship between the owners of the account, the reason the account was opened, and any agreements between the owners about how the funds would be treated, says Shaw. 

In the context of a divorce, “it is irrelevant who deposited the funds,” says Shaw. If the funds were acquired during the marriage, they will be divided between the divorcing spouses. 

There is “little protection from the potential pitfalls of a joint account,” says Shaw. If funds are misappropriated by a co-owner of the account, you can initiate legal action to recover them, but that can be a time-consuming and costly process. There’s also no guarantee you will succeed in recovering the funds. 

In general, opening a joint bank account “requires a high level of trust,” says Shaw.