Keeping a Joint Account After Divorce: What You Need to Know

Divorce brings many financial changes, and one major decision is what to do with a joint bank account. Some ex-spouses keep the account open for shared expenses or financial obligations, but maintaining it comes with risks that need careful consideration.

Understanding ownership, fund access, and potential liabilities can help prevent conflicts. Clear communication with financial institutions and awareness of tax implications are also essential.

Ownership Types

The legal structure of a joint account affects access to funds and what happens if one account holder dies. Knowing these distinctions can help prevent misunderstandings.

Joint Tenants with Right of Survivorship

This type gives both account holders equal access, and if one dies, the remaining balance automatically transfers to the survivor. Even after divorce, either person can withdraw money without the other’s consent, leading to potential disputes or losses.

Banks do not automatically update ownership terms after a divorce. If an ex-spouse dies while the account is still active, the surviving owner inherits the full balance, regardless of the divorce agreement. To avoid unintended consequences, many choose to close or restructure these accounts. Consulting a bank representative to update details or switch to an individual account can prevent future disputes.

Tenants in Common

Here, each account holder owns a specific percentage of the funds. If one dies, their portion goes to their estate rather than the other owner.

For divorced individuals, this arrangement helps define financial boundaries, but it requires clear documentation. If ownership percentages are unclear, disputes may arise over withdrawals. Some banks require both parties to agree on modifications, which can be challenging if communication is strained.

Banks may have specific requirements for ownership changes, sometimes needing a court order to divide funds. Reviewing the account agreement and seeking legal advice can help clarify rights and obligations.

Other Variations

Some joint accounts have unique structures based on state laws or bank policies. In community property states like California and Texas, assets acquired during marriage—including joint bank accounts—may be considered shared property, even if only one spouse contributed. This affects how the account is handled after divorce, especially in legal asset division.

Another variation is the “convenience account,” where one person is the primary owner while the other has access for practical purposes. This setup is common when one spouse manages household finances but can create confusion if the secondary holder assumes ownership rights after divorce. Some banks also offer “payable-on-death” designations, allowing account holders to name a beneficiary who will receive the funds upon their passing.

Understanding these variations is important when deciding whether to keep a joint account open. Some structures require legal steps to update ownership, while others pose financial risks. Reviewing the terms with a banking representative or financial advisor can help ensure the account aligns with post-divorce financial goals.

Allocation of Funds

Managing money in a joint account after divorce requires clear guidelines to prevent disputes. If both parties continue using the account, setting rules for deposits, withdrawals, and spending limits can help maintain transparency. Automatic payments for shared expenses—such as child support, alimony, or mortgage payments—can reduce the risk of missed obligations.

Tracking account activity is also key, as unauthorized transactions can lead to conflicts. Many banks offer online tools for monitoring balances, setting alerts for large withdrawals, or requiring dual authorization for certain transactions. These features can help prevent one party from withdrawing more than their fair share.

Some individuals open a separate account while keeping the joint one active for a transition period. If this approach is taken, deciding how remaining funds will be divided is essential. Transferring money into individual accounts based on a predetermined percentage can help ensure fairness, especially if one party contributed more.

Liability for Account Activity

Keeping a joint account open after divorce means both parties remain legally responsible for any transactions, overdrafts, or debts. Even if one person stops using it, financial institutions typically hold all account holders equally liable unless ownership changes. If an ex-spouse overdraws the account or initiates unauthorized payments, the other party may be responsible for covering the deficit.

Many banks operate under a “joint and several liability” policy, meaning creditors can pursue either account holder for unpaid balances. Automatic payments linked to the account can also cause complications. If a recurring charge—such as a utility bill or loan payment—continues to be deducted, both parties must ensure sufficient funds are available. Insufficient funds can lead to overdraft fees, negative credit reporting, or legal action.

Financial institutions do not remove an account holder simply because of a divorce decree. In many cases, both individuals must agree to close or update the account. If one refuses to cooperate, legal intervention may be necessary.

Fraudulent activity is another risk. If an ex-spouse makes unauthorized withdrawals or misuses funds, resolving the issue can be difficult. While banks may investigate disputed transactions, proving financial misconduct in a joint account is challenging since both parties have legal access. Courts may consider financial misconduct in spousal support or asset division cases, but enforcing repayment is not always straightforward.

Communicating with Financial Institutions

Managing a joint account after divorce requires proactive engagement with the bank. Each financial institution has its own procedures for modifying ownership, and failing to follow the correct steps can leave both parties exposed to financial and legal risks. Contacting the bank early allows individuals to understand their options, whether that means closing the account, converting it into an individual account, or setting up withdrawal restrictions.

Banks may require specific documentation before making changes. A divorce decree alone may not be enough, especially if both parties are listed as co-owners. Written consent from both account holders or a court order may be necessary. If one party is uncooperative, a financial institution cannot remove them unilaterally, which can create complications. Consulting a financial advisor or attorney can help navigate these restrictions.

Some banks may suggest freezing the account if disputes arise. This can prevent unauthorized transactions while legal matters are resolved, though it may also restrict access to necessary funds. Certain banks allow for dual-signature requirements, meaning both parties must approve any withdrawals or transfers. However, this option is not universally available and may require additional agreements.

Tax Filing Concerns

Maintaining a joint account after divorce can have tax implications. How funds are managed and reported can impact both parties, particularly if the account generates interest income or is used for shared financial obligations.

If the account earns interest, the IRS requires that income to be reported, and financial institutions typically issue a Form 1099-INT to the primary account holder. However, if both individuals remain on the account, they may need to determine how to split and report the interest income on their tax returns. The IRS does not automatically divide interest earnings, so if one person receives the full 1099-INT, they may need to file Form 1041 or use IRS Form 8958 to allocate the income appropriately.

For alimony or child support payments, tax treatment depends on the divorce date. Under the Tax Cuts and Jobs Act (TCJA), alimony payments for divorces finalized after 2018 are no longer deductible for the payer or taxable for the recipient. However, for divorces finalized before 2019, alimony remains deductible for the payer and taxable for the recipient, making accurate tracking essential. If the joint account is used for these transactions, maintaining clear records of deposits and withdrawals can help ensure compliance with tax regulations.