A reader writes: “can you blog about married couples having joint bank accounts, credit cards and investments and what happens if one of them is in trouble financially?”

I may be qualified and contextually challenged to answer this question since I am a lawyer by training (qualified albeit I am not in practice) but do not have any joint accounts given I am single (contextually challenged). Keeping in mind this is not advice but information and not specific to anyone’s situation the response is- it depends (there’s the lawyer talking!).

It depends for a variety of reasons- laws differ depending on the jurisdiction of the joint account but, generally (with double emphasis on generally), here are some scenarios to think about.

1. If there is a joint credit card issued in both spouses name, the “good” spouse is responsible for the entire debt even if the “bad” spouse has declared bankruptcy (in simple terms, a bankruptcy freezes any action a creditor may have against you and a trustee in bankruptcy disposes of the estate (i.e. the bankrupt’s assets) and divides it among creditors for usually cents on a dollar)- I am assuming that the spouses are jointly liable for the debt. Thus, sharing a credit card with a fiscally irresponsible spouse if both spouses are jointly liable for the debt is a very risky proposition for the household (please note there is a difference between joint signing authority and jointly liable- the former allow other people to incur debt, the latter means all the card-holders are responsible for the debt regardless of who authorized the charges- you cannot use “I did not know” as a defense: ignorance of the law is generally not a defense).
2. If you have a joint bank account and one of the account holders is being pursued by creditors (whether in or out of a court action), the creditors will obviously assert that the entire sum in the bank account belongs to the “bad” spouse and it is up to the “good” spouse to prove how much of the bank account belongs to them. Under Canadian bankruptcy law, the monies held by the bad spouse in a joint account will be part of the bankrupt’s estate and used to pay out creditors (if indeed there is any money in the joint account). In a garnishment situation, the same analysis applies. Thus, in one way or another, the spouses have to determine what part of the account was deposited by whom to protect or to pay out from the joint account.
3. The same analysis applies to investments with one twist- insurance products (life insurance, segregated funds etc.) are exempt from seizure from creditors in Canada (assuming monies were not diverted to these instruments for the primary purpose of evading creditors in which case the transaction can be reversed). Thus, the entire pool of investment among spouses is protected if it is in an insurance product. If a joint investment account is not in a creditor-proofed insurance vehicle then the same accounting has to occur as per #2.

The long and the short being: if you are married to a fiscally irresponsible person who may have creditors knocking on your door before too long, make sure you have separate accounts. However, if creditors are already knocking on the door, it may be too late since there are laws to prevent the deliberate transfer of monies to avoid creditors.

As an aside, for those readers who are entrepreneurs, please do think about limiting your household’s exposure to your business risk by avoiding joint accounts and removing yourself from title to the house (a personal guarantee for a business loan will pool the home into the assets the bank can seize upon non-payment).

My usual disclaimer applies to this and all posts: this is information only and not advice and not written with any specific individual or jurisdiction in mind. Please consult an accountant or trustee in bankruptcy if you hold joint accounts of any kind whatsoever with a fiscally irresponsible spouse to ensure the household is protected. Good luck.