Breaking Up? 4 Things to Know About Closing a Joint Bank Account
- Many couples have a joint bank account to pay shared and individual bills.
- If you close a joint bank account, you need to do it correctly.
- This means acting swiftly to protect yourself from any potential legal liability.
If you're breaking up with a shared bank account, you need to read this.
If you are married or in a committed relationship, chances are good you will open a joint bank account at some point. Having a shared account allows you to pool resources to pay for shared bills and it can simplify money management since you don't need to divide up the cost of things like groceries or gas.
But, if you do have a joint account and you break up, you're going to want to close the account ASAP. And there are a few things to know about that process.
1. Closing the account quickly helps you prevent penalties
If you are a joint owner of an account and your ex partner uses it irresponsibly, such as by charging more than you can afford and racking up overdraft fees, you are going to be on the hook for covering these costs. You'll want to close the account as soon as possible when you decide to break up so you will no longer be liable for any financial mistakes your former partner makes.
2. Either partner could drain the account -- but that doesn't mean the money belongs to them
If you have a joint bank account, both co-owners can access the money in the bank whenever they want. This means you, or your partner, could technically drain the account and take every dollar out of it.
But while the bank may allow this, that doesn't mean it's necessarily legal. When you divorce, you will need to go through the process of formally dividing your property. If you and your ex partner cannot agree, the court will determine how it should be split up based on the laws in your state. If the court determines the money in the bank account should be split 50/50 (or in some other way), and you or your partner took 100% of the money, you may have to give it back to comply with the court's instructions.
3. You could both be on the hook for taxes associated with the account
If any income tax is incurred by the account, such as tax on interest payments, then both of the co-owners will be responsible for it. Typically, the tax burden is shared based on the percentage of ownership each person has in the account.
4. You'll need to remember to cancel all automatic withdrawals
Finally, when you and your partner go to close the account, it is important that you change any auto debits or auto withdrawals that were going into it. For example, if either of you were having your paychecks directly deposited into the account, you will need to make sure to stop that from happening. And if you have bills being paid from the account, you need to make sure you arrange for the money to be transferred from elsewhere so you don't get hit with penalties or late fees for nonpayment.
By closing the account quickly, preparing for taxes, and making sure you're aware of the legal rules surrounding joint ownership of account assets, you can make sure the process of ending your shared banking relationship goes as smoothly as possible.
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