Joint bank accounts often seem like a good idea to have in place either with your spouse or with your kids, to help save money or pay bills, but they aren’t helpful in estate planning. Even outside of estate planning, joint bank accounts can be quite dangerous in certain circumstances.

When you have a joint bank account with your spouse, you might pay your mortgage from the account, pay your utilities and keep track of how much you’re saving. Well, what happens when you divorce? Oftentimes, the joint bank account is overlooked or forgotten about. Or maybe you still want your ex-wife to have access to the account just in case your kids need anything. Even if your marital settlement agreement says you get to keep the account, if you don’t take the necessary steps to remove someone from your bank account, contract law and even some financial institutions will still recognize the other person as an owner of the account and they may be entitled to keep your money.

How does this affect you?

In the short-term, if you share a joint bank account with your former spouse, children or someone else, and they have judgments against them, creditors may seek to “levy” your account. A levy is a form of collection used by creditors to recover judgments. A hold is placed on your account and the creditor can make a motion to the court to use those funds to satisfy their judgment. This may happen even if the funds do not belong to your former spouse, and it will be up to you to prove to the court and the creditor that those funds should not be used to satisfy the judgment.

In the long-term, it can affect your estate. After your passing, if your bank account is still jointly owned with someone other than the intended beneficiary, pursuant to your account holder agreement with your financial institution, your estate and beneficiaries may not have any right to that account. In most cases, your estate may have to file a lawsuit to recover those funds, although they may not always be successful. In Maryland, courts recognize ownership of accounts under contract law.<a id="footnote1-ref" href="#footnote1">¹</a> This means that any named account holder or beneficiary may maintain ownership just because you named them as such, and a Will or divorce agreement may not be sufficient to change the beneficiary. This goes for retirement accounts as well.

How can you avoid this?

A better option is to name a “pay-on-death beneficiary” on your bank account. It’s exactly what it sounds like – a named beneficiary to your account who will automatically receive the funds available upon proof of your death. You may also want to check who your beneficiaries are on other accounts, such as retirement accounts, life insurance policies, and pensions to ensure they are correct and in line with your testamentary documents. This helps simplify how many steps your estate needs to take during probate. It may even help avoid probate.  Make sure to check the terms of your account agreement with your bank to determine what their procedures are for removing account holders to ensure your money is protected and going where you intend.

If you need help with your estate plan, reach out to the attorneys at RKW Law Group.

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<div id="footnote1" style="    color: var(--midnight-blue);    text-align: justify;    margin-top: 12px;    font-family: Arial, Helvetica Neue, Helvetica, sans-serif;    font-size: 17px;    line-height: 26px;">1. PaineWebber Inc. v.East, 363 Md. 408, 768 A.2d 1029 (2001) <a href="#footnote1-ref" aria-label="Return to footnote 1 referring content."> ↵ </a></div>

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