Pros and Cons of Opening a Joint Bank Account
If you’ve recently been married or entered a committed relationship, you may wonder if it’s a good idea to join your banking with your spouse or partner. Perhaps you’ve discussed the idea with them, but you’re unsure if it’s better to open joint bank accounts or keep your finances separate.
In this article, I’ll explain how joint bank accounts work, including survivorship. I’ll also explain how my wife and I manage our bank accounts and why you may or may not want to do it the same way.
What Is a Joint Account?
A joint bank account is a chequing or savings account opened in more than one person’s name. In most cases, joint accounts have two owners, but many banks and credit unions will allow you to add several accountholders to a joint bank account.
With a joint account, all parties have equal ownership over the funds in the account. They also assume equal responsibility when it comes to account management. This means that all account holders can deposit and withdraw funds, make transfers, etc.
How Does Survivorship Work with Joint Accounts?
If you have a joint account with a spouse or loved one, you may wonder what would happen if one of the account owners were to die. At the time of account setup, most banks give you the option to designate your account as Joint with the Right of Survivorship (JWOR) or Joint without the Right of Survivorship. Here’s what each one means:
Joint with Right of Survivorship: With the right of survivorship, if an account holder passes away, the full balance of the account is transferred into the name of the surviving account holder(s), and they become the sole owner(s) of the funds.
The transition is usually seamless – the financial institution must be provided with proof of death (death certificate). The surviving account holder may have to sign some documentation to remove the deceased’s name from the account.
Joint without Right of Survivorship: If an account has no right of survivorship, the deceased’s share of the bank account passes to their estate and is not transferred to the joint account holder. There are situations where this makes sense.
For example, let’s say two roommates decide to open a joint bank account to manage their shared expenses (rent, utilities, or groceries.) If one of the roommates were to pass away, they may want their share of the account to go to their estate, not to their roommate.
Common Joint Account Arrangements
Married or Common-Law Couple
Most joint bank accounts are shared between couples who are married or living in a common-law relationship. I’ll expand on this scenario in more detail below.
Parent(s) and Adult Children
Aging parents often decide to add their adult children to their bank accounts. In my experience, there are two reasons for doing this. First, it makes it much easier if their children need to assist them with tasks such as grocery shopping or paying bills. The other reason is estate-related.
Technically, funds in a JWOR bank account joint are transferred to the survivor when an accountholder passes away and are not included in the deceased’s estate. It makes for a more seamless transfer of assets, but it also means that probate fees won’t be charged on the amount. The smaller the value of the estate, the cheaper it is to settle.
Note: While this is a common practice, I have been informed by more than one lawyer that the treatment of JWOR accounts has been successfully challenged in court when it’s clear that the funds really only belonged to one party for their use. If the Canada Revenue Agency (CRA) believed that the JWOR status was nothing more than a tax avoidance scheme, they may decide to challenge the JWOR status.
Parent and Minor Child
Some banks and credit unions allow parents to open joint bank accounts with minor children for convenience. However, this is not usually necessary, as the parent can also be added as a signing authority to their children’s account, with the child retaining sole ownership of the account.
Pros and Cons of Opening a Joint Account
There are several benefits (and potential drawbacks) of opening a joint bank account. Here is my list of joint account pros and cons:
- Indicates shared ownership
- Easier to manage a shared budget
- A convenient way to manage shared expenses
- The survivorship clause can make things easier when one account holder passes away
- Cheaper to operate one account versus multiple accounts
- Lack of privacy
- Someone else has control over your money
- What happens if your relationship ends
Married Couples and Joint Accounts: Things to Consider
Whether married couples should have joint bank accounts or keep them separate is an oft-debated topic in personal finance circles. And there is no right or wrong answer; it depends on the couple.
For example, my wife and I have been married for 23 years, and we have always held our money in joint bank accounts. For us, it has to do with a mindset more than anything. The idea that when we were married, we “became one,” so to speak – what’s mine is yours, and what’s yours is mine.
But while that arrangement works well for us, many couples prefer to maintain separate bank accounts for various reasons, all of which are good. For example, they may place a higher priority on personal privacy or want to have more control over their money. In fact, separate accounts are the safer option if there is ever a termination of the relationship.
In my 20+ career as a bank manager, I witnessed countless situations where couples kept all of their money in joint accounts, and as the relationship soured, one spouse took most or all of the money, leaving the other spouse empty-handed. I’ve also seen situations where one spouse mismanaged money due to overspending or a gambling addiction, leaving the other spouse financially vulnerable.
My advice would be to consider having both joint and separate accounts. For example, you could share a joint account to manage shared expenses but keep separate accounts for your personal savings or spending. That way, both partners can maintain a level of privacy and control over their money.
Final Thoughts on Joint Accounts
As you can see, there’s a lot to consider before you open a joint account with your spouse, your parent, or your adult children. Undoubtedly, opening a joint chequing account (or a joint savings account) is a more convenient way for couples or family members to manage money.
But it also comes with potential complications and risks. No one wants to believe that a relationship could end or a family conflict could arise. My best advice is to consider all options and make the best decision for your situation.