Investing with a Spouse: Joint Accounts or Separate? | MagnifyMoney

Investing with a Spouse: Joint Accounts or Keep it Separate?

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Like any other type of joint account, joint investment accounts allow you to invest with another person. While you don’t have to be married to commingle your investment activities, there are reasons to consider a joint investment account if you have a spouse.

You can use joint investment accounts to simplify household finances, manage an account on behalf of another or pool resources to make a purchase. There are two main types of joint investment accounts, and each comes with distinct benefits and drawbacks. Before you invest in a joint account, understand how joint ownership works and how it can impact your finances.

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How do joint investment accounts work?

Joint investment accounts allow two or more people to invest together. You can invest in just about anything with a partner, including stocks, bonds and funds; property (such as vehicles); or real estate.

Combined ownership in financial assets is referred to as joint tenancy. There are two main types of joint tenant accounts: joint tenants with rights of survivorship and joint tenants in common. The main difference is how the shares are divided should one owner pass away. Each has benefits and drawbacks, depending on your needs.

Types of joint tenant accounts

Type of joint account Joint tenants with rights of survivorship Joint tenants in common
Ownership Each party has equal ownership Parties may have different shares of ownership
What happens in case of owner’s death Interest of deceased is automatically passed on to other surviving owners Interest of deceased goes back to the estate or their beneficiary listed in their will
Probate treatment Avoids probateMay be subject to probate

Joint tenants with rights of survivorship

Joint tenants with rights of survivorship (JTWROS) gives each party equal ownership interest in the overall account. Married couples often choose this type of joint brokerage or banking account because rights of survivorship mean the surviving owner has rights to the deceased’s share. Upon the death of one owner, the assets automatically transfer to the other. However, the JTWROS can be broken before that if one owner decides to leave.

Typically used by:

  • Spouses or couples who want to share investment assets.
  • A parent investing for the benefit of a child.

Pros of JTWROS accounts

  • Expert Tip:

    Philosophically joint accounts make sense if you’re married as it represents a joint commitment to the goals you have for your family and your financial life.

    -Bryan P. Koepp, SVP Wealth Planning Executive, Regions Bank

    Keep assets out of probate. Settling a deceased person’s last will through the probate process can be complicated and potentially drag on for months, making it difficult for the surviving spouse to access assets. Some couples strategically place assets in JTWROS to avoid probate. Like other accounts with named beneficiaries, these accounts automatically transfer ownership to the surviving spouse and are typically not included in probate.

  • Everything remains equitable. Both owners of a JTWROS account share the benefits of the assets and repercussions of the liabilities. This mutual self-interest can keep the account from being manipulated by one spouse if things go south in the relationship between account owners.
  • Account owners can leave at will. JTWROS owners must enter into the ownership agreement at the same time. But if one owner wants to leave the investment, a JTWROS can be broken. Both owners’ assets can be sold and equally distributed, or one co-owner can sell their share to another party, changing ownership into a tenancy in common structure (described below).

Cons of JTWROS accounts

  • Expert Tip:

    Really know who the holder is. In some cases, a joint account can be negative, and it’s all about who the holders are

    -Bryan P. Koepp, SVP Wealth Planning Executive, Regions Bank

    Surviving owner has control. In the case of one co-owner’s death, full ownership automatically goes to the surviving owner. The surviving party gains full control of the asset, regardless of any contrary instruction in a will or trust.

  • Shared ownership means shared responsibility. If one co-owner is in debt and a creditor comes after the joint assets or freezes the account, both owners stand to lose equally. This is an important consideration, especially when sharing a joint account with a non-spouse. It’s worth noting that in some states, married couples get the same benefits of a JTWROS through something called tenancy by the entirety, but creditors are not able to come after the shared asset.
  • Special taxes may apply. Depending on who you co-own the assets with, how much your assets are worth and other factors, you may face gift or estate taxes on your account. Consult a tax professional to find out what you may be liable for in your specific situation.

Joint tenants in common

Joint tenants in common allows multiple people to share fractional ownership in a property instead of equal ownership. There are no automatic rights of survivorship with joint tenants in common. When one owner dies, their share of the investment automatically goes back to their estate, unless otherwise specified in a will.

Typically used by: Multiple real estate investors who want to share ownership in a single property, and keep the interest of each separate should one party pass away or leave the investment.

Pros of JTIC accounts

  • Clear lines of ownership. With a JTIC, each owner can make decisions independently. Shares of ownership can easily be sold without disrupting the ownership structure, so new owners can be added to the investment at any time.
  • More beneficiary control. Co-owners can specify who will inherit their shares; otherwise, it will automatically go back to the estate upon the death of the owner.

Cons of JTIC accounts

  • May be exposed to probate. If one owner passes away without a will, the shares will likely have to pass through probate and could impact the overall investment.
  • Shared responsibility for debt. When multiple owners sign a mortgage together, all are exposed if the property is foreclosed. If one person stops paying the mortgage, the others may have to cover payments to avoid this.
  • Co-owners can increase uncertainty. If you are investing with outside parties in a JTIC, those parties can choose to sell their shares at any time. If one owner wants out and you can’t agree, they can file an involuntary partition asking a court to divide up the property or sell and split the money.

Should you use joint investment accounts?

As you can tell from the above, the question of whether to open a joint investment account with someone is a complicated one.

A joint tenancy with a spouse is an easy way to share investments, avoid probate and keep the continuity of ownership should one spouse pass away. Joint tenancy ownership with others may make sense depending on the circumstances.

Before sharing ownership of anything, however, it helps to tread carefully and make sure you understand the risks.

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