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Home >> Accounts >> Checking Accounts
Protecting your Money through Account Co-Ownership
If you are the average person, you may share a checking account with someone, whether that person is your spouse, your child, or your parent. However, if you are not careful, you may be sharing more or less than you anticipated. As an example, a customer and her spouse shared a checking account. Following a separation, the spouse wrote numerous checks, which eventually resulted in overdrafts on the account. While the spouse was liable criminally for the checks, imagine the customer's shock when she learned that the bank only intended to pursue her for the money. After all, the spouse only had check writing privileges, he had never been added as a co-owner of the checking account. Alternatively, an elderly parent adds a grown child as a co-owner to a checking account, only to find that his money has been levied by the court to cover a debt of the child. Even more likely, a parent becomes a co-owner of a checking account with a child, and then finds him or herself on the hook for all of the child's overdrafts.
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To avoid situations such as the ones above, you should carefully consider the pros and cons of co-ownership and then discuss them with your bank representative. Below are five facts you need to know before you decide to add someone to your account, or allow yourself to be added as a co-owner. If you already have joint accounts, you might want to discuss whether you have the account relationship you think you have with your bank. Very often, customers think they are co-owners, when in reality one of them only has check writing privileges.
FACT #1: If you share a checking account with another individual as co-owners, as a general rule, you are both entitled to the full amount in the account. What this means for you is that creditors can access the funds to pay off the debts of the other co-owner; therefore, add with caution. If the person you want to add as a co-owner frequently fails to pay taxes, has wages garnished, or simply has trouble with his or her money, be wary. You may find your own accounts levied to cover his or her debt.
FACT #2: As a co-owner, you are responsible for the negative balance in your account, even if you did not write the check or make the debit purchase. Most checking accounts require that co-owners be equally liable to the bank for any debts; therefore, if you happen to be the co-owner of a checking account with a party who has trouble balancing a checkbook or who frequently uses overdraft protection, get ready to pay the bank their fees, because your are just as responsible as the other co-owner. This is especially important to remember for parents who co-own a checking account with their children. Just as you would be responsible for the debt if you co-signed a loan, you are equally responsible for the overdrafts if you are a co-owner on an account.
FACT #3: Generally only the owner of an account has an agreement with the bank; therefore, if you add someone as a signer to your account and that person causes overdrafts, the bank is liable to look no further than you.
FACT #4: In most states, joint accounts or co-ownership accounts normally come with a right of survivorship. What this means for you is that if one co-owner dies, the surviving owner gets the entire amount in the account without having to go through probate. As with all estate planning, however, you should speak to an attorney before making any definite decisions.
FACT #5: If you want someone to be able to pay your bills, especially coupled with a power-of-attorney, but you do not want that person's creditors to have access to your account, you can simply add them as a signer on your account. Be wary however, because a signer has access to your funds in much the same was as a co-owner.
Published on BankingQuestions.com 9/10/08
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