Whether you’re moving in together or getting married, putting both your names on a single checking account is one step to making things official. While seeing your names nestled together at the top of a check can be satisfying, a joint account also means joint responsibility. Both partners are now responsible for the money, and that comes with a few important considerations.
Planning and Record-Keeping
Perhaps the most important consideration with a joint bank account is that two people are now taking money from the same location. When you’re used to managing an account on your own, it can be difficult to shift to a shared mentality. Couples need a plan for budgeting money in the account and keeping an accurate record of the balance. If one person spends without consulting the other, money may be gone before all the bills are paid. If both people don’t record expenses, overdrafts might occur. Keep check registers in a central location so both individuals can record transactions, or come up with a communication plan so one person can let the other know about transactions. When banking online, make sure both individuals have access to accounts and know the password.
To Restrict or Not to Restrict
In some cases, you might choose to restrict the use of the account. A couple who only wants to share funds in a joint account for the purpose of paying the mortgage could restrict the account so both parties have to sign every check. When accounts aren’t restricted in this way, then a check signed by either person is valid. Before you open a joint account, make sure both individuals understand what the account is for and how each person will be using it.
Avoiding Gift Tax Woes
If two people who are not legally wed open an account together, a deposit into the account by one person can be considered a gift to the other. If someone deposits enough in a single year to exceed the IRS gift tax exclusion - $14,000 for 2015 – then the other person might owe taxes on the excess amount. The gift tax is usually only triggered if a deposit is made by one person and withdrawn by the other, and the amount of those transactions exceeds the exclusion. When dealing with large sums in a joint bank account, it might be a good idea for individuals to consult a tax professional or accountant.