What to Know Before Opening a Joint Checking Account
A joint checking account allows multiple individuals to jointly contribute to, withdraw from, and access the same pool of money or funds. Often married couples open joint accounts in order to simplify managing the household finances. Each individual that is listed as a joint manager to the account is assumed to be an equal owner (unless special circumstances prevail), and as such, has an equal right to access all the funds.
In considering whether to open a joint checking account, most people are under the impression that there are a lot of pros and cons to weigh, such as the particular bank they should sign up with. While choosing the right bank shouldn't be overlooked, in reality, the decision requires far less calculation. Before you open a joint account, ask yourself how well you know the person you want to merge finances with -- usually a spouse.
The importance of knowing financial habits
Although most people are not suspicious of their spouse, fully knowing what the other person's financial habits may not be so transparent, especially for couples who haven't dated for very long before tying the knot. "Be sure you fully trust the person you are opening the account with," advises David A. Schneider, a CFPR. "Either signer has the ability to drain the account."
There are also legal implications for opening a joint account that can be consequential to you and the person you share the account with in the future. According to Schneider, "Be aware that assets in a joint account are fair game for either person's creditors. Also be aware that assets in a typical joint account will pass to the surviving party if one person dies. Don't put assets into a joint account if you don't want this to happen."
In the event that you choose to open an joint account with someone other than a partner or spouse, there are several factors to consider, beforehand.
Who is not a good candidate for a joint checking account?
Someone with financial baggage
If you're considering opening a joint checking account with someone who has financial baggage, don't walk -- run. According to Jennifer N. Weil, a debt attorney, getting yourself financially entangled in their mess could wipe out your funds. "A judgment creditor can levy against (take money from) a person's bank account in order to satisfy a judgment. And in many states, such as New Jersey, all of the money in a joint bank account is presumed to be 100 percent owned by the account's owners, until proven otherwise."
A spouse or partner who doesn't share the same financial goals as you
For married couples, setting up joint accounts is a common method for managing the household's income. However, depending on each spouse's financial behaviors, beliefs, and personalities, doing so can cause disagreement and tension within the partnership. If you are a spouse or soon-to-be spouse wondering whether opening a joint account will help or harm your relationship, consider your money, saving, and spending patterns along with theirs.
For instance, do you already bicker over personal purchases and spending? Are you apprehensive about the lack of privacy when making contributions and withdrawals, and other transactions? It's important to entertain all aspects of the decision and to acknowledge that if you break up or get a divorce, the other person can access all the funds and potentially wipe it clean.
Who is a good candidate?
On the other hand, many couples are great candidates for joint checking accounts -- the secret lies in developing and personalizing a strategy that works. One suggestion, by personal finance author Pegi Burdick, is for each spouse to retain their own individual accounts. "Because money and emotions often are cheek and jowl, one of the best ways to keep the marriage safe from becoming a financial battleground, is to have three accounts: Yours, Mine and Ours," Burdick says. "It is not about trust, it's about clarity and respect. How much one allocates to 'ours' needs to be discussed; there might be one breadwinner because the other one is a stay-at-home parent. Both equally important."
There are a variety of benefits that come with opening a joint checking account with a spouse. For one, it provides a pool of funds through which to pay communal expenses, such as vacation and bills, and ensures that if one spouse passes away that the other will have access to their money. Successfully participating in a joint account also allows for joint saving for long-term goals, like starting a family or buying a home.
Because of the risk involved in granting universal access to your funds (at least those in the joint checking account), many experts advise against opening an account with anyone except relatives. Parents can ease their teenage children into learning to be financially accountable by cosigning them for an account and linking their joint checking account to their children's. This allows parents to funnel emergency money or allowances into their child's account, and also gives them a way to monitor their spending. Overdraft is always a potential risk since it's the child's first introduction to banking. However, it can be very beneficial as long as open and clear communication, and accountability is established.
Similarly, adult children can be their aging parents' caregivers when they are no longer able to do their own bookkeeping and handle the finances. Co-signing for a joint checking account with them can give you full access to their financial statements and funds.