First comes love, then comes marriage, then comes… a joint checking account. Combining assets when uniting as a married couple seems only natural, and often it is a wise idea. Other situations may also come about when sharing an account with someone else makes perfect sense. On the other side of the coin, caveats arise, and there are definitely times when having a joint checking account can do more harm than good.
Let’s take a look, then, at the practical uses of joint checking accounts and the potential downfalls.
Joint Checking Accounts for Couples
Couples uniting their assets has been a common practice for generations. The reasons for two people in the same household to share a checking account are many. One checking account for buying groceries and paying bills makes it easy to keep track of where all of your money is going.
Financial experts say this set-up is also healthy for most relationships. “I think it’s important to have both names on every account,” Keith Klein, a financial planner with Turning Pointe Wealth Management in Phoenix, tells U.S. News & World Report. “It eliminates some trust issues.”
Couples who aren’t married but still share financial responsibilities can also consider a joint checking account. About 8.3 million Americans lived together as unmarried couples in 2015, according to Census data.
For these folks, it can make sense to have two checking accounts: Each person can keep a personal checking account, but they can also set up a joint account in both names. Money can be set aside from each partner’s paycheck for the joint account — to cover rent, utilities, and shared goals such as vacations — while some assets can remain with each individual.
“Once you’ve determined how much each of you should contribute, you can start paying into that shared account. You can then use that money to cover rent and bills and save up for travel, big purchases, or emergencies,” writes Amelia Josephson on SmartAsset.
At the same time, each partner can have another account to handle assets he or she would rather not share with a partner. The important thing, Josephson notes, is to make sure you’re telling each other how much you’ll be putting into the joint checking account and how much you’ll be keeping. This goes back to maintaining trust in a relationship.
When joint checking accounts don’t make sense for couples: Finances have been known to put a strain on even the strongest relationships. While joint checking accounts can alleviate some of the angst, they can also contribute to it.
Women often give up rights to the checkbook upon marriage, said Emily Sanders, managing director of United Capital in Norcross, Ga., in U.S. News & World Report — and that can lead to resentment. Having dual accounts gives each person in the relationship a sense of control over their finances, she notes.
Another potential problem with joint checking accounts can arise when one partner spends differently than the other. One, for example, may prefer to squirrel away money, splurging infrequently and only for very special occasions. The other may not be a total spendthrift, but still might spend a little frivolously on the weekends as a way of cutting loose.
Disparate spending habits can lead to tension, according to Kelsa Dickey, a financial coach and owner of Fiscal Fitness Phoenix. With separate accounts, people can spend according to their personality, she told U.S. News & World Report.
Joint Checking Accounts with Elderly Parents
With people living longer, they sometimes reach the point where they can no longer handle their finances on their own. If they’re living at home, they may not be paying attention to when bills are due. If they’ve relocated to an assisted living facility or a nursing home, more financial burdens may occur that can lead to confusion or uncertainty. In such instances, having an adult child share financial responsibilities may be advisable.
When joint checking accounts don’t make sense between adult child and elderly parent: Take note that many financial advisers warn against such a set-up, or at the minimum stress extreme caution.
“While adding a child’s name seems like a harmless, familial gesture of love and trust, the financial consequences can be extremely negative to both parent and child,” financial expert Eve Kaplan writes for Forbes. Unexpected gift taxes can be assessed, Kaplan notes, and there’s also the possibility of shared liability if either person on the account runs into financial problems.
For these and other reasons, some experts believe establishing power of attorney for a parent and requesting access to financial assets such as a checking account is the safer way to go.
Joint Checking Accounts with Minor Children
Teenagers can typically open checking accounts, but parents have an obligation to keep track of what is going in and out of those accounts. This is a great learning experience — for both parents and children. The young person responsible for the checking account must learn to deposit, write checks, and balance the account; the parent must learn to oversee the process while still giving independence to the child.
Some parents may decide to create a joint checking account with children as a way of monitoring the account. “Having a joint account with your child can help build trust. It can give you both ease in knowing the other person is responsible with managing money,” according to the blog of Maryland-based law firm Berman, Sobin, Gross, Feldman & Darby (BSGFD).
When joint checking accounts don’t make sense between a parent and a minor: The firm points out, however, that many negatives can occur when a minor and an adult parent share a checking account. Irresponsibility on the part of the child can lead to a drained bank account and financial issues for the adult. Personal liabilities, such as credit card issues, can be assessed to both people on a joint checking account.
In any situation, weigh the pros and cons of having a joint checking account. As the legal experts at BSGFD advise, “The only time you should ever open a joint account with someone is when you have absolute trust that they won’t take advantage of you.”