Matthew Lester: Are joint bank accounts a good idea?

‘Are joint bank accounts a good idea?’ is a common question from young couples. And the answer does not have much to do with tax considerations.

I have two major problems with joint bank accounts:

  1. If all goes wrong and someone empties or spends the account there is basically nothing you can do about it. Yes, technically you could go to court. But get real; the legal fees will break you long before you get to the court stairs.
  2. If a partner dies then there are always complications with the executor. A surviving spouse needs cash and doesn’t want to argue the toss or wait for letters of executorship etc.

There is a potential tax saving if the interest income from joint bank accounts is split between two taxpayers, especially if only one is working. But watch out!

The only guarantee when splitting interest income from a joint bank account occurs when taxpayers are married in community of property.

If married out of community of property, with or without accrual, or even living together in a permanent relationship, the interest income is taxable in the hands of the person who made the capital. Even if there is an interspouse donation that may be exempt from donations tax, the interest is deemed to be taxable in the donor’s hands.

As the tax act currently stands it is best to slowly accumulate wealth in the hands of both spouses. And it’s a lot safer as well.

If partners need a joint bank account to control the monthly budget then it is a better idea to both make a monthly contribution to a joint bank account. Given the ease of making internet transfers this is by no means the administrative hassle that it used to be.

Yes, the idea of a joint account has romantic appeal. But that is about as far as it goes. In my humble opinion nothing provides more security in a relationship than each partner knowing exactly where they stand with their finances.

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