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Joint Bank Accounts

Provided by Glenn Sweeney, 1st Vice President, Director of Business Continuity,
Chemical Bank Risk Management

joint-bank-accountJoint bank accounts are becoming increasingly common for multiple owners outside of a marriage relationship. This trend is more often seen when a spouse passes away or an aged owner considers it “estate or financial planning” by adding a child, grandchild, niece, nephew, caregiver, etc. for administrative or convenience purposes, to assist in the payment of bills and eventual avoidance of the funds falling into a “probated” estate. However, joint accounts between owners other than spouses could result in unintended consequences as discussed below.

Garnishments, Levies, Lawsuits  Most state laws presume each owner has equal rights and access to funds held in a joint account regardless of who contributed to the account. So, when a creditor attempts to satisfy a garnishment, levy, or lawsuit settlement they begin searching for assets in which the debtor is named. Once the asset is located (joint bank account in this instance), the financial institution is obligated to honor the court ordered judgment.  In other words, a joint account could be attached to pay for a co-owner’s debt, even if none of the other owners were part of the debt. There are some protections for SSA and SSI, but pensions and other contributions are open for seizure unless an account holder can prove the adjudged made no contributions to the account at any time in which they were named an owner.

Medicaid Denial  When a Medicaid applicant is an owner of a joint bank account, the full amount in the account is generally presumed to belong to the applicant, regardless of how many other names are listed on the account. Thus, the entire account balance is typically included when calculating the applicant’s eligibility for Medicaid benefits. If the applicant can prove all parties contributed funds, the state may value the account differently. Otherwise, the full balance of the joint bank account will likely be deemed to belong to the applicant.

Bankruptcy Complications  Petitions for bankruptcy commonly consider equal portions of ownership on joint bank accounts. This means the account balance at the time of bankruptcy is divided by the number of owners, and the petitioner’s portion is considered in the bankruptcy. Joint owners can argue ownership if they are able to provide substantial documentation evidencing their contribution (or lack thereof) to the account.

Overdrafts  Each account owner is equally responsible for satisfying overdrawn account balances and accompanying overdraft fees. Habitual overdrawn conditions could ultimately affect an innocent owner’s credit standing.

Fraud  Equal ownership of a joint account increases the possibility of fraud. One owner may utilize funds in the account he or she did not contribute, resulting in fraud. If the person who committed the fraud is a close friend or a family member, the other joint owner(s) almost always opts out of prosecution.

Joint Tenancy  Michigan contract law considers a joint account to be with rights of survivorship. This simply means when one owner passes away, the decedent’s ownership passes to the remaining owners. Surviving heirs have no entitlement unless they are one of the surviving owners, or unless they choose to contest in a court of law. Unfortunately, the latter predictably leads to severed family relationships and exhaustive legal costs.

Alternatives  Individuals considering joint accounts should weigh other options such as a durable financial power of attorney, account beneficiary, Trust Account, or professional estate planning.

Education is Helping  Many financial institutions today are providing much needed education regarding joint account ownership. This education is taking place in school classrooms, public meetings, and at the customer service desk when a customer is contemplating opening a joint account. Bankers are careful to watch for coercion, undue influence, incompetence and other signs clearly suggesting a joint account is not the proper solution for certain customers.

Glenn Sweeney is a member of Midland County Vulnerable Adult Network (MCVAN). Chemical Bank along with Midland County Prosecutor’s Office, the Department of Health and Human Services, Senior Services, Community Mental Health, Midland Police, Midland Sheriff’s office and several other community organizations make up this network. The network coordinates the identification and delivery of needed services to abused, neglected or exploited vulnerable adults. MCVAN’s purpose is to protect and serve vulnerable adults in our community, by increasing our understanding of the complex issues surrounding abuse. If you suspect that you or someone you know may be a victim of elder abuse, speak up. Report to Department of Health and Human Services (DHHS) Centralized 24-hour intake 855-444-3911.