Debt Relief Experts
A joint bank account is an account that allows two or more parties to each deposit, withdraw and manage funds in the account. Whether or not it’s a good idea to get a joint account with your spouse, a friend or any family member depends on your personal situation. On today’s show, with guest Ted Michalos, we take a look at the different types of joint accounts, their pros and cons, how they are treated in an insolvency filing, and help you decide whether you should or shouldn’t get a joint account.
There are several types of joint accounts. The most common ones being joint chequing and savings accounts. You can also enter into a joint credit card. Each of these has different benefits as well as risks.
Table of Contents
Pros and cons of a joint bank account
There are certain times in life why it might make sense to have a joint bank account:
- Convenience is one of the biggest advantages of owning a joint bank account. A joint account allows you and the other signatory to have easy access to all of your funds. It makes bookkeeping simple since all of your transactions are happening in one place, whether it’s the amount of money going into how much is being taken out.
- In case of death – Should one of you pass away, you may be able to avoid financial and legal complications when the survivor needs to access funds. When you set up a joint account, you can include the right of survivorship which means that, in the event of a death, the designated survivor continues to have full rights to funds in the joint account. There is a risk that this right may be challenged by others who believe they have an interest in the money as an inheritance.
- Helping older family members – Another great benefit to a joint bank account is the ability to help senior family members manage their money. You can be added as an account owner to take care of their finances seamlessly should for any reason they become unable to do so on their own.
- Better money management – With the ability to monitor all of your collective activity, you have a much better understanding of your combined cash-flow. You will be better able to have a productive conversation around spending patterns and how to manage financial needs.
On the other hand, there are some challenges to joint bank accounts too:
- Loss of financial independence and privacy – This will depend largely on your personality type, but you may wish to have separate accounts and not always make it known where you spend money. You may prefer less transparency. In this case, you could take the hybrid route and have both a joint account and a separate account for personal expenses like gifts, for example.
- In the case of divorce – Having all of your finances in one place might create problems if the separation is unpleasant. In extreme cases, you may lose all your funds. As both account owners have equal rights to manage the funds, the risk is one of the holders behaving unfairly. Again, it’s a good idea to also have a separate bank account should a situation like this arise and, depending on your personal preference, you may wish only to have separate accounts and avoid joint ones altogether.
- Excessive spending causing overdraft – This is another area in which you may face issues. It’s one thing to go over budget, but it’s a bigger problem if one of you withdraws too much money and causes your chequing account to go into overdraft. Since it’s a joint account, the overdraft fees become your joint responsibility. To avoid this shock, be sure to monitor your joint account regularly so that if this happens, the fees don’t pile up too high before you can pay them off.
- The right of set off – This is your lender’s right to retrieve funds from your account to pay off any loans on which you have defaulted. If, for example, your husband has not made payments on his own credit card for several months, and that credit card is at the same bank as your joint account, the bank could theoretically pull from your joint chequing account to pay his back debts.
Pros and cons of joint credit cards
Similar to a joint bank account, having a joint credit card means all account owners share complete responsibility for its management. While there are benefits to sharing a credit card, there are also serious risks.
Benefits of joint credit cards include:
- You share one bill – You can simplify your finances by having only one credit card bill to pay. Again, monitoring transactions becomes a lot easier when all your expenses are consolidated on one credit card.
- Improve a low credit score – If you or your partner has a low credit score, a joint credit card can help improve the lower credit score cardholder’s rating, assuming bills are regularly paid off in full and that the card is kept in good standing. It’s a useful way of establishing credit for those who need it.
The major drawback to a joint credit card happens when you accumulate debt on the card:
- All account holders are equally responsible for debt on a joint credit card. Any amount owing on the card is the complete responsibility of both parties to pay off. It’s not divided 50-50. If one party cannot or will not pay, the other account holder is still responsible for the entirety of the debt. This can be a serious burden if the amount is too high for either party to have to pay off by themselves, leading to a lower credit rating if you default on payments, or a wage garnishment if you become delinquent. This is why it’s very important to think carefully before signing for a joint debt like a credit card.
- In a divorce, managing joint credit card debt may become a big problem. Regardless of what a divorce agreement says about who is responsible for joint credit card debt, it remains 100% the responsibility of both parties to repay. If your spouse is not staying true to their obligation, you would be on the hook, risking your financial health.
It is also important to understand that a joint credit card is not the same as a supplementary card. A supplemental credit card is just a secondary credit card that you’ve authorized to put charges on your account. A secondary credit card holder may or may not be responsible for charges made depending on the primary cardholder agreement.
What happens to joint accounts in a bankruptcy or consumer proposal?
Joint bank accounts and bankruptcy
In a bankruptcy filing, you assign your rights to an asset, like a bank account, to your Trustee for the benefit of your creditors. This includes a joint bank account which will now be renamed, for example, Mary and the bankrupt estate of John.
Practically, most people who file bankruptcy or a proposal do not have significant funds in an account but if they do it can mean the trustee will seize those funds. If you only have enough for a month’s rent or groceries, most trustees will leave that money for you to use for immediate living expenses. However, having ‘bankrupt estate of’ on the account can affect the credit of the non-bankrupt.
In order to remedy this, we always advise our clients to create new and separate bank accounts and close their joint account before filing for bankruptcy. This way, your finances remain separate and you avoid the risk of the right of set-off.
Read More: How Does Bankruptcy Affect My Spouse?
Joint debts and bankruptcy
When it comes to joint debts in a bankruptcy or consumer proposal, if only your spouse files for insolvency on their separate and joint debts, they will be granted creditor protection and will not make payments on any debt. If you are also liable as a joint debtor, creditors will then pursue you for full payment on the joint debt. If you are unable to repay that debt on your own, then you and your spouse could pursue a joint insolvency filing. For more detail on your options, read our complete guide to joint debts.
Are joint accounts a good idea?
As you’ve probably learned, the answer to this question depends on the type of account, the type of person you are and the personal financial situation for each account holder.
When it comes to joint bank accounts, we advise that it is often safer to use a joint account for common household expenses like groceries and rent or mortgage payments, and have separate bank accounts for your own savings and personal expenses.
We recommend exercising a great deal of caution before signing on the dotted line for a joint debt of any kind as you become completely liable for whatever the other person does, and this could negatively affect the finances of both spouses.
For more information on whether or not you should have a joint bank account, tune in to the podcast or read the complete transcription below.
Links and Resources
- Joint Debt and Co-Signing Your Spouse’s Debt
- Why You Should Bank at More Than One Bank
- Straight Talk on Your Money book by Doug Hoyes
FULL TRANSCRIPT: Show 214 Should You Have a Joint Bank Account?
Doug Hoyes: On today’s podcast we answer one simple question, should you have a joint bank account with your spouse. Sounds like a simple enough question, why are we devoting an entire podcast to it? Because the answer is not as simple as you may think. So to discuss it it’s time to welcome back to the show my Hoyes Michalos co-founder and business partner, Ted Michalos who is making his first appearance on the show here on season number 5 and his first appearance in the new Debt Free in 30 studio. Ted, ready to go?
Ted Michalos: Very excited.
Doug Hoyes: Excellent. Excellent. We’re going to start with the basics here, so what do we mean when we refer to a joint account.
Ted Michalos: Alright, so we’re going to put the obvious cannabis joke aside.
Doug Hoyes: No cannabis jokes.
Ted Michalos: No cannabis jokes, because, you know, we are based in Ontario.
Doug Hoyes: Exactly. Exactly.
Ted Michalos: A joint bank account is one that has two or more signatures to it. So for instance if my spouse and I had a checking account together, we both have the right to sign the account, withdraw funds, to deposit funds.
Doug Hoyes: So pretty much that simple. There’s more than one name on the account.
Ted Michalos: Right.
Doug Hoyes: So if I give my wife or my son my bank card and I tell them my PIN, that’s not a joint bank account.
Ted Michalos: No.
Doug Hoyes: Just because I’ve given them my bank card.
Ted Michalos: That’s you giving away all the money in your account to your wife or son or anyone else.
Doug Hoyes: So we don’t recommend letting anyone else know your PIN. If you have a joint account with someone, then you can get a separate card for them, they can get their own PIN.
Ted Michalos: Correct.
Doug Hoyes: But giving someone a card is not the same as having a joint account.
Ted Michalos: That’s right.
Doug Hoyes: Okay. So is sharing an account a good idea? Before we talk about joint accounts, just is sharing an account a good idea?
Ted Michalos: If you’re talking about me getting someone access to my account, so I’m sharing it with them, I think that’s generally a bad idea. You have to trust that person a great deal.
Doug Hoyes: You and I have both done bankruptcies for people who come in and say “Yeah, my son, my friend, whatever, I wanted to help him out, I gave him my card, I gave him my pin” and oh, well, bad things happened.
Ted Michalos: Correct.
Doug Hoyes: So that’s why we don’t think it’s a fantastic idea. Okay, let’s get back to joint accounts then. And I want to start with all of the advantages of having an account that’s joint with let’s say your spouse. So I’m going to run through a list of benefits here and I want you to give me your take on each of them. So the obvious benefit, I mean you already kind of alluded to it, is that both spouses, both people who are joint on the account, have access to the money that’s in the account.
Ted Michalos: Right. And that just makes sense. So if you’ve got two people that have signatures on the account, both of those people have equal access. They can both go into the account and do things. Take money out, put money in, move money around.
Doug Hoyes: So in terms of paying bills or whatever, while we both have access to the account.
Ted Michalos: There’s a huge convenience factor to that, right? So depending on who in the family or the household is looking after paying the bills or buying the groceries or any of those other things, it’s just easier if you can both do the same things.
Doug Hoyes: So convenience. That’s the real simple answer then. So what about tracking of all expenses and knowledge of where each of you are spending money? Is that a good thing, a bad thing?
Ted Michalos: One of the things we found over the years is people lack discipline, so they don’t keep track of how they spend their money. So if you’ve got all of the transactions coming out of one account it’s easier to monitor things. If you each have your own account then you’ve got to put that information together when you’re looking at things at the end of the month.
Doug Hoyes: So, again, it’s a convenience factor there too.
Ted Michalos: Right.
Doug Hoyes: Both on the income side and expense side.
Ted Michalos: It certainly makes recordkeeping simpler.
Doug Hoyes: So there’s another checkmark in terms of benefits.
Ted Michalos: Yeah.
Doug Hoyes: So do you think it increases communication around money if we both have a joint account?
Ted Michalos: My experience is that when you have joint accounts, particularly spouses, one person is responsible for the money and the other person is cursorily involved on the sidelines. So it only increases communications when the person who is not directly involved goes in and starts asking questions of the person that’s doing all the work.
Doug Hoyes: Yeah. And I totally agree with that and I think every couple I’ve ever dealt with, that’s the way it is. I’ve never seen an equal distribution of that. It doesn’t matter if it’s the male or the female or two males –
Ted Michalos: It’s not equally split actually. It’s personality type, it’s got nothing to do with gender.
Doug Hoyes: That’s just the way it is. Okay, so it may or may not increase communication around money. What about joint goal setting? Does it help if you have a joint bank account for that or is that really not as much of a factor?
Ted Michalos: I think it would depend on the nature of the account. So let’s say a couple, and it could be business partners for all the difference it makes, has a goal of saving $100,000. So now they create a joint savings account and they keep putting money in it. Well, so that would help achieve that goal, because it’s easier to monitor. In most cases I don’t know that it would make a significant difference.
Doug Hoyes: What about legal benefits and specifically, you know, if one of us dies.
Ted Michalos: You’ve been talking to my wife.
Doug Hoyes: Oh, absolutely. So let’s talk about you and your wife then. One of you dies and you have a joint bank account.
Ted Michalos: So there’s no interruption or disturbance to accessing the account. So if you have separate bank accounts and you die, somebody’s got to go to the bank, prove that you’ve got a right to take money out of my account; I’m dead. I think there’s a chapter in your book about that –
Doug Hoyes: Yeah, I was just thinking about that, didn’t I talk about death somewhere in my book. So, yeah, you’re right, myth number 18, I am immortal. I did actually talk about that, that having a joint account makes it really simple, that one party, you know, dies for example, well, the money’s still there, I’ve still got complete access to it. I don’t have to worry about setting up a new account or anything like that.
Ted Michalos: I mean people get around that with your whole sharing thing that we started the show with. So in your will or last testament you’ve got information on your PIN number and your card, but it’s not the same thing. For legal access, you’re kind of tricking the system.
Doug Hoyes: And it’s not immediate.
Ted Michalos: Right.
Doug Hoyes: So if we’re both using the same account all the time, then it doesn’t matter. I’ve got my own card, I’ve got access to the banking so there’s no interruption at all. And I guess the final benefit, and this is kind of an obvious one, is that there is less risk that one spouse is short. So if we’ve got one account and we pay the hydro bill, we pay the groceries and all that sort of stuff from one account, then all the money is there. If we have two separate accounts and I pay the groceries out of my account, okay, I might be short when I go to the grocery store if they’re separated.
Ted Michalos: Yeah. That’s makes sense.
Doug Hoyes: That’s kind of a convenience thing as well I think.
Ted Michalos: It all comes back to convenience.
Doug Hoyes: Okay. So there’s lots of advantages. So now let’s talk about the disadvantages. Because it would be Debt Free in 30 if we didn’t talk about disadvantages. I mean one advantage is the joint goal setting and knowing everything. I guess the disadvantage is that there’s a loss of financial independence and privacy.
Ted Michalos: There is.
Doug Hoyes: Is that a big thing, is that an issue?
Ted Michalos: It comes down to the individual and your personality. I mean we still see people that have separate bank accounts. They do everything separately and they don’t claim to have any knowledge of what their spouse or other person is doing. So there’s a certain personality type that likes that control. I think that’s the best word for it.
Doug Hoyes: And there’s a certain personality type that likes the opposite of control.
Ted Michalos: Correct.
Doug Hoyes: I don’t want to know. I go to work, I do my thing, the bills get paid.
Ted Michalos: “It’s not my problem.”
Doug Hoyes: So I guess knowing what your personality type is is important. What about less personal freedom? I guess it’s kind of hard to buy a birthday present from the joint account if the other person can see “Oh, you went to that store yesterday.”
Ted Michalos: Well, here’s part of the rub. The second advantage we talked about was making it easier for recordkeeping, so you’ve got all the transactions in one place. Well, you just hit the nail on the head. So if all the transactions are in one place, then everybody gets to see every transaction that you complete. Now, I suppose you could go and take $300 out in cash and go use that to go buy the birthday present, but then it looks like you’re taking cash out all the time and now you’re deluding the recordkeeping function, as opposed to making a transaction at the store, having the record on your bank account, now you’ve got a cash transaction with no record of it anymore.
Doug Hoyes: Yeah. So trust is a big thing here, which is going to have a big impact on whether this is a good idea or a bad idea. And I guess there’s always hybrids of this. So you could say “Okay, we got a joint account, that’s where all the main bills get paid, they groceries, the hydro, the rent, everything else and we’ve each got two separate accounts that we use for Christmas and birthday presents or something like that.
Ted Michalos: And just about everybody we’ve ever talked to that has joint accounts for the main bill paying does that. They’ve got their own credit cards and other accounts on the side. People just do that.
Doug Hoyes: And there is some advantage to that. I mean we talked about what if your spouse dies. Well, I guess it would be nice to have a credit card in your own name, so you’re not trying to rebuild your credit or restart your credit after –
Ted Michalos: From zero.
Doug Hoyes: From zero. So there’s probably some advantages to that too. What about the whole idea of anger, anxiety and how to deal with his or her premarital debts. You know, if you’re paying out of joint funds. We all know what joint debts are, but let’s confirm that. So a debt is joint, not if you’re married.
Ted Michalos: No. If you both legally signed for it. Typical example is a credit card. If you both got access to the credit cards, they’re both the same, the account number, then you are jointly responsible for the debt. That means if I don’t pay it the other person has to.
Doug Hoyes: So it’s not 50%, 50%.
Ted Michalos: No.
Doug Hoyes: It’s 100%, 100%
Ted Michalos: Correct.
Doug Hoyes: You’re completely liable for everything. So what happens when a divorce or a separation occurs? If we have a joint bank account, we can talk about that, you already addressed what happens if we have a joint debt. We’re both fully responsible for it.
Ted Michalos: If you have a joint bank account and you’re going through a marital breakdown, the first thing one of you better do is go move the money out of the account, because the other person is going to do it if you don’t.
Doug Hoyes: Yeah. And it may not be a deliberate, malicious thing, it may be that well, okay, I got to go set up my own apartment, I need first and last month’s rent and you’re going to go set up your own apartment, first and – Okay, then we’ve got a problem.
Ted Michalos: Yeah. The basic premise is if you’re going through a divorce or separation is that it’s no longer a stable relationship and you got to start setting up all these things in your own name. So the sooner you do it, the safer.
Doug Hoyes: Yeah, that’s why it’s called separation.
Ted Michalos: That’s exactly right.
Doug Hoyes: You’re going to separate everything. So when we talk about joint accounts, does age matter?
Ted Michalos: That’s a good question. So another type of joint account is a parent and a child. The child’s going off to university, they want access to money every month, the parent puts the money in that account, doesn’t fill the account up, because the kid would spend it all in one week, but you put some in every month. There’s some advantages to that.
Doug Hoyes: So your kids are younger than mine. Mine are all up and gone. But I know when they were little we opened bank accounts for them.
Ted Michalos: Yeah, savings accounts.
Doug Hoyes: A savings account. And when a kid is 6 years old it’s a joint account with their parent, I assume.
Ted Michalos: Correct.
Doug Hoyes: Is how you do it.
Ted Michalos: Yeah.
Doug Hoyes: So that exactly as you describe it, well, you can help the kid put their allowance in it or something like that.
Ted Michalos: Yeah.
Doug Hoyes: So your example of a kid off at university, a joint account is a good way to handle that –
Ted Michalos: It’s a useful tool.
Doug Hoyes: Because you can transfer the money directly in and they’ve got access to it.
Ted Michalos: And that’s becoming a tool for seniors. So if you want to look after Mum and Dad, well, they’re going to be short every month, you, again, put some money into their account. But it doesn’t need to be a joint account for that. You can make deposits or transfers into somebody else’s account. The joint account just gives you full access and privileges. Now back to your trust issue and convenience, if you got full access and privileges you can monitor what’s happening in that account.
Doug Hoyes: Yeah. And I know that’s exactly what I did with my dad. He said to me a few years ago, “Well, just in case I ever have a problem, you know, I want to make sure the hydro bill still gets paid.” So we’re both with the waste bank, so he just put me on as joint on his account that he does his day-to-day banking in. So, if for some reason he was incapacitated or something, well, I could go and pay his hydro bill or whatever. So, again, convenience factor, but my dad has to trust me that I’m not going to go in and just scoop his account, which I haven’t done yet. Although one day I’m going to click the wrong button and pay a bill from this account instead of that account.
Ted Michalos: Probably.
Doug Hoyes: So I’m sure I’ll hear from him, you know, if that was to happen. So when then, and again, I think you’ve kind of touched on this, but when would you want to have a separate account then? So we talked about the convenience of joint accounts, when is it a good idea to have separate accounts?
Ted Michalos: It comes back again to the control issue. So a separate account is a good idea if you’re the type of personality or the type of transactions you’re running, you need control and records that are your own, that they’re not diluted or mixed. If one of the two people on a joint account lacks discipline, if they’re inclined to go take a lot of cash out to spend cash instead of putting transactions through, you’re going to defeat the purpose of the joint account. So it literally depends on the nature of the relationship and the transactions you’re putting through.
Doug Hoyes: And I guess another example would be if you’re really, really rich and you keep more than $100, 000 sitting in your bank account and you’re worried that the Canadian banking system is going to fail, CDINC insurance only covers up to $100,000, so.
Ted Michalos: I don’t know if I’m going to put that on the top of our list.
Doug Hoyes: So all the multimillionaires who are watching this, who, for some reason, keep all their money in a bank account earning 0% interest, that would be a good reason. So, again, we kind of touched on this. Can you have a hybrid? So some joint, some separate. A joint checking account, separate savings account.
Ted Michalos: The argument would be you probably should. Again, in every couple we’ve ever encountered, one person ends up being responsible for paying the bills. So that’s just the way – It’s husband and wife, it doesn’t matter, one person does it. Giving the other person access to that account as a joint account just allows them the confidence to go in and look and see that things are being handled appropriately. They may never look, but it shows that you trust them enough that they can have a look.
Doug Hoyes: And for investment accounts, there’s no such thing as a joint RSP account.
Ted Michalos: Correct.
Doug Hoyes: An RSP is either in your name or somebody else’s name. A TFSA would be the same.
Ted Michalos: Yeah.
Doug Hoyes: RDSP, now we start getting into RESPs, you can have more than one person who’s created it. But in those cases, yes, they would obviously be separate accounts.
Ted Michalos: Yeah.
Doug Hoyes: So with an RSP you can make a spousal contribution, but it’s still their account. So for investment purposes they have to be separate accounts, that’s just the way it is. So if you are not married yet, can you have a joint account?
Ted Michalos: You can. Any two people can be legally responsible for signing on an account.
Doug Hoyes: So with a friend, with a parent, with a sibling.
Ted Michalos: Yeah.
Doug Hoyes: No reason why not. Why would you have a joint account with a friend?
Ted Michalos: That’s a very good question.
Doug Hoyes: I guess if there were some joint expenses that you were covering.
Ted Michalos: Yeah.
Doug Hoyes: Maybe you’re a single person and well, as a backup, if I ever get into trouble, you know, here’s –
Ted Michalos: You could have a joint account for the rent. Say two or three people are renting –
Doug Hoyes: That would be a good answer.
Ted Michalos: Everybody has to put their money in. You got to trust that they’re doing it, but.
Doug Hoyes: Yeah. And that way the landlord could just take the money out of that one account, it’s an account that’s just for one purpose.
Ted Michalos: Right.
Doug Hoyes: You can have as many bank accounts as you want, there’s no laws against it, but you got to be very careful about service charges for one thing.
Ted Michalos: Right. And you got to make sure you’re using the right account at the right time.
Doug Hoyes: Yeah. I mean we’ve both dealt with clients who’ve had multiple bank accounts. I think my record was somebody who had I think 40 of them. And they were all from online banks so they were free, didn’t cost her any service charges, but that was kind of instead of the envelope method or the jar method, she just had a bunch of accounts and “That was the one I pay the groceries with” and so on. Seemed a little overkill to me. But for something like the rent that would make perfect sense. You open the account at an online bank so it doesn’t cost anything, it’s a joint account and we can all go in and check did you put your share of the rent in, did I put mine in, whatever. Then we’re good. And it might even be a good idea for an account like that to set it up so that you can make it a deposit only account.
Ted Michalos: Yeah.
Doug Hoyes: So once the money goes in, only the landlord can take it out. I don’t know if that’s possible or not, but that might be a planning point as well. So what about credit score implications? So if I’ve got an overdraft in a joint account, does that affect each party equally? How does that impact what would happen with the credit score?
Ted Michalos: As long as it’s being reported that way by the financial institution, it should have equal impact on both their credit scores.
Doug Hoyes: So if you have an overdraft account and if you’re keeping it current and there’s no problems then you want that to be reported that looks good on you. I guess the same would certainly be true of a credit card. I don’t think we specifically said this, but there’s a difference between a joint credit card and a supplemental credit card.
Ted Michalos: There definitely is. A joint credit card you’re both legally responsible for the debt. A supplementary credit card it’s a secondary cardholder that you’ve authorized to put charges on your account. So they’re not responsible for the debt.
Doug Hoyes: Yeah. And so your common example of that would be, again, you know, your kid’s off to university so you say “Here you go, here’s a credit card. It’s got a $1,000 limit on it, so you can make your emergency expenses or buy your books or whatever. But it’ entirely in my name, so the most I can get burned for is $1,000. It has no impact on their credit.
Ted Michalos: Correct.
Doug Hoyes: Because it’s just in my name.
Ted Michalos: Yeah.
Doug Hoyes: Okay. So what happens in the case of a bankruptcy or a consumer proposal with joint accounts if only one spouse files the bankruptcy or the proposal?
Ted Michalos: So let’s deal with bank accounts first. So when you file bankruptcy, and it’s different for a proposal, when you file bankruptcy you’re assigning you rights to an asset to the trustee. So if Jane and John Doe had a joint bank account and John filed bankruptcy, it would be Jane and the bankrupt estate of John Doe. And presumably the trustee would go in and take all the money.
Doug Hoyes: And it’s very uncommon that that actually happens.
Ted Michalos: Right.
Doug Hoyes: Because you got a whole bunch of money in the bank account, you’re probably not going bankrupt. So that would be a highly unusual circumstance. And if you’ve got $500 in the account and that’s going to be part of next month’s rent, we’re not touching that. I mean we’re talking about big sums of money is what we’re talking about.
Ted Michalos: Yeah.
Doug Hoyes: So if one of the parties is going bankrupt, you don’t want to have a whole bunch of money sitting in the bank account that would right seizure by the trustee.
Ted Michalos: Well, in addition you would run the risk that – so that bank account now is identified in the bankruptcy, so that might negatively reflect on the other person’s credit report as well. They’re just getting dragged into it.
Doug Hoyes: So if it’s as simple as it’s a bank account, the answer is before you go bankrupt, close that account, open two new accounts, one for you, one for the other person.
Ted Michalos: Correct.
Doug Hoyes: Keep it separate then you don’t have to worry about it.
Ted Michalos: Yeah.
Doug Hoyes: Now, every time someone files a bankruptcy or a consumer proposal, we strongly recommend that they open a new bank account.
Ted Michalos: We certainly do.
Doug Hoyes: Why do we do that?
Ted Michalos: The majority of people that have a bank account also have some sort of credit tool with that bank. Overdraft, credit card, line of credit, loan, doesn’t matter. And all of those accounts has something called a right of setoff. So if there’s money in your bank account and you owe money on a VISA card, you don’t make your payment on the VISA, they can take it out of your bank account. So you file bankruptcy, you owe money on a VISA, the bank will automatically take whatever money’s left in your account to pay off that VISA. And it’s legal. So we tell people to switch those bank accounts beforehand, because you suddenly can’t pay the rent, you can’t buy your groceries, you can’t put gas in the car, you’re in trouble.
Doug Hoyes: And even if it’s not legal, well, they can do it.
Ted Michalos: Right. Or they’ll blame it on the computer.
Doug Hoyes: Yeah. If there’s 20 bucks sitting on the table, somebody can take it. So, again, if you’re contemplating filing a bankruptcy or proposal or if you’re even just starting to get behind on some of your payments, then having a separate bank account at a separate bank where you don’t owe any money is kind of a no-brainer.
Ted Michalos: Well, that’s eggs in one basket sort of routine. There are a lot of people that will tell you that well, you’ll want your bank account, your checking account, your credit card, your loans all with one bank so they know everything about you. Well, the downside is they know everything about you. So it’s always good to have a bank account someplace else that’s completely independent, that’s not tied into any of your debts or any of your other transactions.
Doug Hoyes: Was that in the book?
Ted Michalos: That’s probably in the book someplace.
Doug Hoyes: I think there was something about banking at only one bank and you’re right, that’s the good thing and the risk. Actually myth number 20 is where we talked about joint bank accounts. So we covered it a couple of different places.
Ted Michalos: We could just read the book.
Doug Hoyes: We should’ve just done that. So Straight Talk on Your Money. And I guess this kind of brings us to our final point, which is that when you’re setting your financial goals as a couple, it really has nothing to do with how your banking is arranged. You can have joint financial goals and two separate accounts or one account, that’s not really the issue.
Ted Michalos: Yeah.
Doug Hoyes: So be conscious of the recordkeeping versus the legalities of it. So is your advice to have just joint accounts, to have a hybrid, to have two separate accounts? Is every situation different?
Ted Michalos: So my personal advice is not to have any joint accounts with anybody ever.
Doug Hoyes: There you go.
Ted Michalos: Because I just don’t trust people.
Doug Hoyes: Ted is a naturally trusting person.
Ted Michalos: That’s right. Warm and fuzzy and all those things.
Doug Hoyes: So what you’re really talking about is you’re weighing convenience with trust.
Ted Michalos: That’s right.
Doug Hoyes: That’s really what it is.
Ted Michalos: And in my own personal relationship, I’m the one who pays the bill. I’m the accountant and that’s just my personality type. So the stuff all flows through there. And my wife has my PIN and access to looking at my account, but she can’t sign cheques.
Doug Hoyes: Nobody writes cheques anymore anyway, so it’s less of an issue. And I’m the complete opposite. We’ve got one joint account, that’s where all the money goes.
Ted Michalos: You’re both accountants.
Doug Hoyes: We’re both accountants, so it’s all going to work out. But I guess if I was giving someone advice as to how to set things up, even though neither one of us are actually following this advice, you know, my advice would be have a joint account for all of the joint expenses.
Ted Michalos: Correct.
Doug Hoyes: So put your pay cheques in them and that’s how the rent, the groceries, everything gets paid for. Then for convenience sake or, you know, butt cover if you want to call it, you have two separate accounts and that – I mean what happens if the main bank is down? What if there’s some issue. What if some creditor erroneously freezes your bank account, you know, Revenue Canada, something like that. Well, having two separate accounts already set up makes things a lot easier.
Ted Michalos: It does.
Doug Hoyes: Maybe they’re savings accounts, that’s where the Christmas money goes or whatever. So probably a hybrid makes sense, if you’re not paying much in service charges, if you can keep track of it. So you got to think it through for yourself. It’s pretty much that simple I think.
Ted Michalos: It is. And I draw a line between joint accounts versus joint debts. So, you’re right, a hybrid model for joint accounts makes a lot of sense and I think every young couple, that’s what the counsellors tell them to do. That’s got nothing to do with joint debts, that with the exception of your mortgage and maybe a car payment, shouldn’t have joint credit cards, shouldn’t have joint lines of credit, all those things are very, very bad.
Doug Hoyes: Yeah. Because you are liable for whatever the other person does. It’s as simple as that. Now, again, from a convenience point of view maybe it makes sense, from a credit point of view, maybe as a joint borrowing we can get a better deal on the credit card and if we had two separate ones, those are things you got to think through for yourself.
Ted Michalos: You do.
Doug Hoyes: There’s no right answer that’s going to work for everybody.
Ted Michalos: And there never is.
Doug Hoyes: And that’s why we talk about these things on the show, we’ve talked about the pros and cons and you can make the decisions for yourself.
Ted Michalos: True.
Doug Hoyes: Excellent. Well, I think that’s a great way to end it. Ted, thanks for being here. That’s our show for today. As always, a full transcript of this show can be found at hoyes.com. That’s H-O-Y-E-S.com. That’s where you can also find full show notes with links to everything you need to know about joint accounts and I’ll also put some links in to a couple of previous shows we’ve done that have talked about some of these issues.
Ted Michalos: Can they order the book?
Doug Hoyes: Yes. You can order the book, straighttalkonyourmoney.ca. I think if you go to Chapters or Kindle or Amazon, it’s all there.
Ted Michalos: Someplace else.
Doug Hoyes: Exactly. I’ve got another new show for you next week, so be sure to subscribe to the podcast on iTunes or whatever podcast app you use. New for this season, all of the podcasts are also available on YouTube, assuming our video equipment worked today, you can see what Ted and I look like. So you can subscribe on YouTube to the Debt Free in 30 channel. So until next week, thanks for listening. For Ted Michalos, I’m Doug Hoyes. That was Debt Free in 30.
