Have a Shared Account (or thinking of opening one)? Just like any other financial account, there’s a lot of fine print—and reading through joint bank account rules and regulations can be dizzying.
But never fear, we’re here to help you crack the code of legalese! Think of this blog post as your secret decoder ring for some of the most common questions about joint account rules.
A quick caveat: While we can transform jargon into understandable language, we can’t give legal advice—so remember that this info is for your general education. Every individual circumstance is different, and some situations are complicated enough that you might want to consult with an expert if you can, like a lawyer or a tax professional. Some tax software may also answer your tax-specific questions.
Now, don your fedoras—it’s time to solve the mystery of joint bank account rules and turn that legalese into easy-ese!
Q: Who pays taxes on interest on joint accounts?
Legalese answer: Typically, interest on joint accounts is reported under the primary account holder’s (usually the first name on the account) tax identification number. If the parties are married filing jointly, the income is included on that return. If the parties are filing separately, the process is more complicated and depends on the relationship between the parties and the state(s) they live in. It might also require the party identified on the original 1099-INT to file a second 1099-INT alerting the IRS that another taxpayer will be responsible for a portion of the income.
Decoded answer: Whoever’s name comes first on the account (that’s the “primary account holder”) pays the taxes on any interest earned on money in your joint account. If you have a Simple Shared Account, that will be the person who used their Individual Account to invite a second person to open a Shared Account with them.
At the end of the year, banks report to the IRS on any interest an account earned. That interest will be associated with the primary account holder’s social security number, and the bank will send them a form (called a 1099-INT) that they’ll use when you file your taxes.
If you’re married to the person you share an account with and file a joint tax return, you just include the interest there.
If you’re not married (or don’t file jointly with your spouse), joint account tax reporting is a tad more complicated—and the rules are different based on what state you live in. The primary account holder might just include the interest on their own tax return. In some other cases, whoever got the 1099-INT form from the IRS might have to file a second 1099-INT form and have the other person on the account pay some of the taxes on the interest. Bottom line: if you share an account with someone and aren’t married, it may be a good idea to check with a pro about how to handle the interest at tax time.
Q: Who owns the money in a joint bank account? Are there different joint account withdrawal rules for married versus non-married people?
Legalese answer: Each party has an equal right to any funds in a joint account, regardless of the relationship between the parties.
Decoded answer: You and the person you share an account with both have the right to withdraw and spend the money, whenever and however. It doesn’t matter who deposited the money, who earned the money, or what your relationship is. This is why it’s a good idea to have healthy and transparent conversations about finances (because if your roommate spends the rent money in your joint account on a jet ski…well, that’s technically their right, so all you can do is have a very serious discussion with them).
Q: What happens to the money in a joint account if a married couple divorces? What about if the account holders are unmarried partners or roommates?
Legalese answer: If a married couple divorces, in most cases, funds in a joint account are considered marital property and will be divided based on the divorce decree or settlement. If account holders are not married (or protected by common-law marriage or similar regime), and the relationship dissolves, the joint account is unchanged. Both parties still have the same rights to the funds as they had during the relationship.
Decoded answer: Getting divorced, like getting married, is a legal process—and that process will involve a legal agreement (and likely a lot of paperwork) about how the money in your joint account will be divvied up once you split up.
But if you’re not married, the money in your shared account is still equally owned by both of you, even if you break up or stop living together—so you’ll have to work it out between yourselves. That said, some states have laws about joint accounts (and other assets) that apply to romantic couples who live together (sometimes known as “common-law marriages). So you might want to check with a professional to understand your specific situation.
Q: What happens to the money in a joint bank account if somebody dies?
Legalese answer: Most joint accounts are owned jointly with the right of survivorship; if one party dies, the survivor has sole ownership of the funds. The death of one account holder (and the passing of the funds to the survivor via the survivorship feature) can cause inheritance tax issues. All of these situations are subject to limits and are affected by the specific details of the situation.
Decoded answer: In most cases, if you die, the person you share the account with owns the money (and vice versa)—and it doesn’t matter if you’re married or not.
However, joint account rules on death have a lot of nuances. For instance, the IRS might consider the money in the joint account to be an inheritance—so the surviving person might have to deal with inheritance tax (depending, for example, on how much the deceased person’s estate is worth).
Not to get heavy, but thinking about what would happen to the things you share if one of you dies is an important part of planning for your shared financial life. So having that convo early on is a good way to feel more confident about your future—financial and otherwise.
Q: Are joint accounts part of an estate?
Legalese answer: Yes, joint accounts are part of a deceased person’s estate.
Decoded answer: So, “estate” is the legal term for all the valuable things that belonged to a person who dies (“valuable” in terms of being worth money—some things, like a cherished pie recipe, are just priceless). Assets might be things like a house, a car, jewelry—and, yes, money in joint bank accounts. This is why you might have to deal with inheritance tax issues (as discussed above) if the person you share an account with passes away.
Q: If the person I opened a joint account with dies or is taken off the account, can I add a different person?
Legalese answer: Yes, depending on the bank. However, adding an additional party to an existing account could cause gift tax implications.
Decoded answer: While every bank will have different rules for the joint accounts they offer, you can usually add someone else to your account if the person you initially opened it with is no longer on the account (for instance, if they pass away or you agree to part ways financially).
However, before you go ahead, it’s wise to check with a pro, because sometimes the IRS will consider the money in the account to be a gift to the person you add—and they might have to pay taxes on that “gift.”
Q: Can money in a joint bank account be seized to cover one person’s debts?
Legalese answer: Yes. Funds in joint bank accounts can be seized to satisfy garnishments, levies, and other legal obligations.
Decoded answer: If a court orders you or your joint-account partner to pay someone (for instance, if you lose a lawsuit), the court can have that money automatically taken from your bank account—and that includes your joint account. It doesn’t matter if only one of you owes the money; the funds in your joint account can be seized if a court orders that.
The two most common situations here are garnishments and levies—these might be for things like back taxes or child support that someone is legally required to pay.
There are laws that limit seizures from bank accounts, so if money is being seized from your joint account, you may want to talk to a lawyer about your legal options. Your state bar association’s website can be a good place to start if you need to find a lawyer.
And there you have it—some of the most common joint bank account rules, decoded! Now that you know the nitty-gritty on these common questions, you and your joint account partner can make financial decisions and share expenses with confidence.
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