Many people, usually spouses, have joint bank accounts. Sometimes joint bank accounts are opened for the convenience of allowing a child to access funds and write checks to pay bills.  Sometimes joint bank accounts are opened up as a way to have ownership of the funds pass to the surviving joint account holder upon death. While it may seem an easy and convenient thing to do, there are problems associated with joint accounts which should be considered before opening a joint account.

First, a joint account holder has complete access to all the funds in the account. There is no bank oversight on the access — either account holder can withdraw any part or all of the money in the account for any purpose at any time.

Second, a joint bank account is at risk from actions by the creditors of either account holder. So for example, if one joint account holder has a judgment against him, all the funds in the account can be attached and used to pay the judgment. Also, if one account holder gets divorced and his spouse claims a right to some of the funds in the account, then he would need to go to court to prove that the money does not belong to the other divorcing account holder.

Third, upon the death of either account holder, the money would passes to the survivor. However, the money remains subject to estate and inheritance taxes. Even if the person who died is not the person who contributed the funds to the account, the account would nevertheless be taxed as part of the estate. In other words, the survivor could end up paying an estate and inheritance tax on the funds they deposited in the first place. This can result in a significant tax burden which could be avoided.

There is a presumption under New Jersey law that a joint account is deemed to be owned one-half by each account holder and, if you are trying to prove that you really own most or all of the funds, you will have to present clear and convincing evidence.  This is a difficult standard to meet.  Another way to challenge the general “halfsies” rule is to make a claim of undue influence. This usually comes up in the context of a will.

Joint accounts can be useful but you should be aware of the potential pitfalls, and if you are filing a bankruptcy case, you should discuss the status and treatment of the account with your bankruptcy attorney.  If you have questions, please call our office and we will be glad to assist you.

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