How debts can put joint accounts at risk

Q. My mother put me as a joint owner of two of her bank accounts. I have a little trouble with debt, and I have two judgments against me that I can’t afford to pay. Can my creditors go after her accounts?
— Daughter

A. You and your mom could be in for some trouble.

Your creditors can absolutely go after accounts when you are a joint owner.

Once money is deposited in a joint account, it belongs to both account holders equally, regardless of who deposited the money, said Jeff Rossi, a certified financial planner with Peak Wealth Advisors in Holmdel.

“One problem with joint accounts is that it makes the account vulnerable to all the account owner’s creditors,” Rossi said. “If you have two judgments against you that you can’t afford to pay, eventually your creditors will catch up to you, and the assets in the joint account with your mother are fair game.”

Rossi said there is a statute of limitations for creditors to collect debts, but because you already have judgments against you, it likely won’t be long until they’ll be seeking payment.

If a levy is put on your joint account, the bank will generally freeze the account, Rossi said.

There are some reasons that allow you to overcome the levy.

“In some situations, if you’re just the joint owner for the convenience of writing checks for an elderly parent and the money isn’t yours, or the account contains only Social Security money which can’t be levied, you may be able to get the funds unfrozen,” he said. “Of course, it takes time, effort and sometimes money to get the levy lifted, and you need to ask yourself if you it’s worth it – even if you prevail.”

If your mother added you to the account for estate planning purposes, perhaps to avoid probate, there is a better way to conduct estate planning and plan for disability, Rossi said.

“For example, a power of attorney can ensure you will have access to your mother’s finances in the case of her disability,” Rossi said. “If she is seeking to transfer assets and avoid probate,a trust or a transfer on death (TOD) account may make better sense.”

It may be worth talking to an attorney about the best way to support your mother’s estate and/or disability planning situation in conjunction with your debt situation.

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.