What is a joint account?
A joint account is exactly the same as a traditional account. The only difference is that it is shared by two or more people. Contrary to what its name suggests, a joint account is not only for couples. Many couples have one, but you could, for example, open one with co-owners of your family cottage.
All the account holders have the same rights. They can make deposits, withdrawals or carry out other banking operations. In general, they do not need to get authorization from the other account holders to carry out transactions.
To ensure better control over the account, it’s possible to require two signatures for cheques and withdrawals. In this case, it would be impossible to have a debit card for the joint account. This is less practical, but it guarantees your right to review all transactions.
What are the advantages of a joint account?
Opening a joint account is particularly useful for managing a couple’s shared bills. You can use the account to pay for home expenses, family activities or school supplies for your children in school. It is simpler and faster than holding on to your bills and trying to split them all later.
Your financial institution could require that you have a joint account if you wish to become homeowners as a couple. The mortgage payment would then be made from this account.
A joint account allows you to manage your expenses as a duo, but it is also very practical for saving. You can use the account to set aside money for a renovation project, a wedding or travel.
What are the disadvantages of a joint account?
Because the property in a joint account is shared, you have less control over the expenditures that are made. Good communication and a healthy, trusting relationship between you and your partner is therefore essential to avoid problems.
In case of a conflict or separation, it is recommended that the account is closed quickly. Imagine if one of the account holders decided to withdraw the entire account balance unbeknownst to the other.
In Quebec, a joint account is temporarily frozen in the event of the death or incapacity of a co-holder. This ensures that the wishes expressed by the deceased in their will are respected, for example. It is worth having a personal account as well to avoid running out of money overnight.
In other provinces and territories, a joint account includes a right of ownership with survivorship. This means that the surviving account holder would become the sole owner of the account, and the deceased’s estate does not have access to it. The money that was shared would belong to one person.
Does your co-holder have financial problems?
If your partner has financial problems, opening a joint account could pose certain difficulties. First and foremost, their bad credit score could negatively affect yours.
If the co-holder manages the account in an irresponsible manner, you will have to face the same consequences as them. For example, you would be responsible for any fees related to overdraft due to insufficient funds, even if you are not the one who carried out the problematic transaction.
If a line of credit is linked to your account, you will also be responsible for managing the debt. You are responsible even if the transactions were made by your partner.
A creditor can request seizure of sums in the account to be repaid. In this case, the account risks being blocked and part of the money could be returned to the creditor.
Note, however, that in the event of bankruptcy, the authorized insolvency trustee will determine what part of the joint account will go to each of the holders. Only the property of the bankrupt person can be seized.
How to avoid disputes
Experts often recommend that couples contribute to their joint account according to their income. If someone earns 60% of the household income, they should contribute 60% to the joint account. Shared expenses are therefore more equal. The partner with the lower salary has fewer chances of losing a disproportionate amount of money.
Partners should also have a frank discussion about their values and priorities. They should agree from the outset what the account will be used for to avoid any misunderstanding. Creating a budget also allows for transparent management of money inflow and outflow. This way, you can enjoy the financial benefits of living together while limiting the risk of conflict!
Before opening a joint account
Here are some questions to ask yourself before combining your finances as a couple.
- Is your future co-holder trustworthy? Do they have personal problems (gambling or drug problems, financial difficulties, etc.) that could lead to poor decisions in managing the joint account?
- What is the other person’s financial status and credit score?
- Are you comfortable with how a joint account works and the responsibilities involved?
- Will you be able to regularly verify your statements to detect any possible irregularities?
Remember that there are many ways to manage a couple’s finances. The important thing is to find the one that works best for both of you.