Joint bank accounts have been labelled ‘outdated’ by the modern couple – do I need one?
Digital wealth manager Moneyfarm has reported that 44% of Britons under-30 in long-term relationships believe joint bank accounts are outdated, indicating that the times are changing with the way couples are choosing to manage their money. What are the advantages and associated risks in having a joint bank account?
Moneyfarm’s report found that 33% of young people do not intend to open a joint bank account, in stark contrast to generations before where a joint account has been the commonplace arrangement for most marriages and long-term relationships. One factor which may assist in explaining this is the decline in homeownership among young adults and that people are choosing to get married later, with the average age for marriage now being 31. With Brits taking these significant ‘life steps’ later than generations before them, the need for any shared financial arrangement is postponed.
Another influencing factor may also be that most families now require dual incomes in order to meet their needs. Statistics show 73% of couples with children are both in employment. With both partners receiving some form of an independent income stream during the relationship, individuals are less reliant on their partner to meet their daily needs.
However, statistics also indicate a change in attitude. When asked, some individuals made reference to the risks of financial control with joint accounts. Moneyfarm’s report noted that 43% of under-30’s found a joint account to be a sexist tool for controlling women. Moreover 20% of people didn’t trust their partner not to spend the whole contents of a joint account.
Joint accounts – the benefits and risks
Joint accounts for couples were previously the norm due to their ease and suitability for a family dynamic. By legally having two individuals named on one account, couples can simultaneously build and access funds. When having to meet joint expenditures, such as household bills, food or the mortgage, having a single joint account simplifies the process as funds can be debited without couples having to carry out a detailed review to understand the division of monthly outgoings. Moreover, if your household relies on a single income, having a joint account enables both you and your partner to access funds immediately.
There is also a benefit of financial transparency with a joint account. If all of your family’s funds are placed in a single account which is accessible to all, both you and your partner can track your financial income and outgoings; one of you is not reliant on the other to understand your family finances.
Additionally, in the event that you or your partner dies, a joint account usually transfers to the surviving holder by survivorship, allowing them to immediately continue to access joint funds, which may be crucial to meet continuing outgoings, such as the mortgage payments.
However, one important consideration which should be taken into account is that by opening a joint account with another person, your credit files will be financially linked with theirs. Accordingly, if your partner has a poor credit history, this may impact your ability to borrow in the future.
Another important consideration is that by setting up a joint account, both parties have an equal legal right to the funds in the account. A consequence of this means that there is a risk that your partner could drain all of the funds out of the account or even run it into debt through an overdraft. Parties can apply to the bank to have the account frozen, however this may not be ideal where there are direct debits already set up to meet family outgoings.
Economic abuse
Economic abuse is defined by the Domestic Abuse Act 2021 to be any behaviour of one person that has a substantial adverse effect on a connected person’s ability to acquire, use or maintain money or other property or obtain goods and services. Economic abuse is more common in romantic relationships due to their nature of co-dependency. As joint bank accounts are reliant upon both parties being reasonable and not misusing finances, there is a risk of joint accounts being used as a tool for financial control.
If financial control develops to the extent that it is considered economic abuse during a marriage, the courts can consider this personal misconduct within financial remedy proceedings upon divorce. However, even in the case that economic abuse is established, it is very difficult to have this misconduct influence the overall division of assets, as the abuse needs to be shown to have an effect on the overall financial picture. One way the court may be able to offer retribution to victims is by using their powers of “add back” jurisprudence. If the economic abuse has taken the shape of the abuser wantonly and recklessly squandering assets, the court may return these funds to the victim by increasing their overall share of the distribution of assets. Moreover, if a party tries to misuse the joint bank accounts during divorce proceedings the court has the power to apply a freezing order on the account until the matter completes.
Although the court has some retribution powers in response to past economic abuse and wide powers during financial proceedings, it does not combat the preliminary risk of economic abuse taking place during a relationship. Moreover, these protections offered to divorcing couples during proceedings do not extend to unmarried individuals in long-term relationships.
Married couples
This leads us to one last and often overlooked factor to consider when deciding whether to open a joint bank account – the effect of being married. While all of the above considerations apply to all joint account holders, married couples should keep in mind their legal status.
Once married, you and your partner are free to handle your finances as you see fit. You may decide it is best to keep yours and your spouse’s finances separated in your respective sole bank accounts. Legally you cannot access one another’s bank accounts because you are not named as account holders, however this does not mean that these funds are ringfenced for yourself should you decide to separate. Once married, the Family Court will consider any finances available to parties to form part of the marital pot and available for division. It will then go on to determine how those finances should be divided, with the starting point (though often very much not the end point) for capital and pensions being an equal division. Some assets can be found to fall outside of the marriage, but the choice to keep funds in a sole bank account does not in any way guarantee this. The court cannot be prohibited from ordering funds from one spouse’s sole account to be shared with the other if fairness calls for it.
Key takeaways
Whether a joint account is the right financial arrangement for you and your partner will ultimately depend on what will best meet your family’s needs. While there are logistical benefits to a joint account, there are clear associated risks. You should only agree to set up a joint bank account with someone that you implicitly trust to have access to the funds. If you do not trust your partner to not misuse funds or exert control, a joint account is not suitable.
In order to protect yourself from the risk of economic abuse, you may want to consider having a sole account in addition to a joint account, to ensure that you can immediately access funds at all times.
You should have a discussion before setting up an account with your partner on how your joint account should be used and what you will do with the account in the event you separate. It is beneficial to have these agreements clearly in writing, for you and your partner to easily refer back to. Our team can assist in drafting an agreement which governs the relationship between you and your partner, including the parameters of any joint account use.
In any case if you are married you should bear in mind that choosing not to open a joint account with your spouse does not automatically ringfence your assets in the event you both separate.
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