Determining whether to open a joint brokerage account with another person, whether a romantic partner, business associate, or relative, can be a difficult decision. Couples often use joint brokerage accounts to simplify household finances and build wealth together. However, this doesn’t mean they are suitable for everyone.
Two or more people may own and manage joint brokerage accounts. These accounts are used to combine investment activities with multiple people. But before investing together using a joint brokerage account with a spouse or partner, it’s essential to understand how joint ownership works and its potential impacts on your finances.
Investing Together
The reason many couples decide to invest together is fairly simple: they live together, manage a household, and are planning a future together. It can make sense then, not just from a financial perspective but for a healthy relationship, to invest together to build wealth for future goals.
If you’re planning for these long-term financial goals together, like retirement or buying a house, then that might mean having a joint brokerage account in order to plan for your shared desires. But that doesn’t mean couples have to invest together; it could make sense for you to share some accounts as a couple and to keep some separate.
But opening a joint brokerage account and investing together can also be practical in terms of financial returns. Combining your money to invest can potentially help your money grow faster than if investing individually; as you invest a larger pool of funds, the gains can accumulate and go further as you benefit from compounding returns.
💡 Wondering about compounding returns? Here’s our investors guide to compounding returns.
What Is a Joint Brokerage Account?
A joint brokerage account is a brokerage account shared by two or more people. Couples, relatives, and business partners typically use joint brokerage accounts to manage investments and finances together. However, any two adults can open a joint brokerage account.
Joint brokerage accounts typically allow anyone named on the account to access and manage its investments. There are multiple ways people can establish joint brokerage accounts, each with specific rules for how account owners can access funds or how the account contents are handled after one of the joint holders passes away.
In contrast, retirement accounts like 401(k)s or individual retirement accounts (IRAs) do not allow joint ownership, unlike many taxable brokerage accounts.
Advantages of Joint Brokerage Accounts for Couples
There are several advantages that couples may benefit from by establishing and using joint brokerage accounts.
Single Investment Manager
One person can be responsible for all of the investment decisions and transactions within the account. This can be useful when only one member of a couple has interest in managing financial affairs.
💡 Recommended: Should I Hire a Money Manager?
Combined Resources
As mentioned above, combining resources can be beneficial as investment decisions are made with a larger pool of money that can be used to increase compounding returns. Additionally, combining resources into a single account may help reduce costs and investment fees, as opposed to managing multiple brokerage accounts.
Simplified Estate Planning
A joint brokerage account can simplify estate planning. With certain types of joint brokerage accounts, the surviving account owner will automatically receive the proceeds of the account if one account holder dies. This significantly simplifies estate planning and may allow the surviving account holder to avoid a costly legal battle to maintain ownership.
Challenges of Joint Brokerage Accounts for Couples
There are a few challenges that come with joint brokerage accounts for couples.
Transparency and Trust
Both parties who own a joint brokerage account need to be comfortable with the level of transparency that comes with shared ownership. This means that both partners need to be comfortable with sharing information about their investment objectives, financial goals, and risk tolerance.
Additionally, owners of a joint brokerage account must trust one another. Because the other account holder is an equal owner of the assets and can make changes to the account without your permission, they can make unadvised investment decisions or empty out the account without your consent.
Breaking Up
It’s important to remember that a joint brokerage account is a joint asset. This means that if the relationship ends, the account will need to be divided between the two parties. This can be a complex and time-consuming process, so it’s important to be sure that both partners are prepared for this possibility.
Tax Issues
If you open a joint brokerage account with someone other than a spouse, any deposits you make into the joint account could be deemed a gift to the other account holder, which could trigger gift tax liabilities.
💡 Recommended: A Guide to Tax-Efficient Investing
Things to Know About Joint Brokerage Accounts
Before opening a brokerage account with a partner, business associate, or relative, it’s important to understand the differences between the types of accounts.
There are several types of joint brokerage accounts, each with specific nuances regarding ownership. If you are planning on opening a joint brokerage account, pay close attention to these different types of ownership so you can open one that fits your particular circ*mstances.
| Type of Account | Ownership | Death of Owner | Probate Treatment |
|---|---|---|---|
| Tenancy by Entirety | Only married couples can utilize this type of account. Each spouse has equal ownership rights to the account. | If one spouse dies, the other spouse gets full ownership of the account. | Avoids probate. |
| Joint Tenants With Rights of Survivorship | Each owner has equal rights to the account. | If one owner dies, the ownership interest is passed to surviving owners. | Avoids probate. |
| Tenancy in Common | Owners may have different ownership shares of account. | If one owner dies, the ownership share passes to their estate or a beneficiary. | May be subject to probate court. |
Ownership
How the ownership of a joint brokerage account is divided up depends on the type of account a couple opens.
• Tenancy by Entirety: If the couple is married, they can benefit from opening an account with tenancy by the entirety. Each spouse has an equal and undivided interest in the account. It is not a 50/50 split; the spouses own 100% of the account.
• Joint Tenants with Rights of Survivorship: This type of joint account gives each owner an equal financial stake in the account.
• Tenancy in Common: A joint brokerage account with tenancy in common allows owners to have different ownership stakes in the account. For example, a couple may open a joint account with tenancy in common and establish a 70/30 ownership split of the account.
Death of Owner
When an owner of a joint brokerage account passes away, their share of the account may pass on to the surviving owners or a beneficiary, depending on the type of account.
• Tenancy by Entirety: If a spouse dies, their ownership stake passes on to the surviving spouse.
• Joint Tenants with Rights of Survivorship: If one owner dies, the ownership interest is passed onto surviving owners.
• Tenancy in Common: If one owner dies, the ownership share passes to their estate or a beneficiary.
Probate Court
In many financial dealings, it can be challenging to determine who owns what when someone passes away. These questions are often brought into the legal system, with probate courts often resolving issues of ownership for financial accounts and property. This can also occur with joint brokerage accounts, depending on the type of account a couple may open.
• Tenancy by Entirety: This type of account avoids the need for probate court, as ownership stays with one spouse if the other spouse passes away.
• Joint Tenants with Rights of Survivorship: This type of account avoids the need for probate court, as ownership interest is passed to the surviving owners when one owner dies.
• Tenancy in Common: In this type of account, if one owner passes away without a will or a state beneficiary, their ownership share will likely have to pass through probate court.
However, regardless of the type of joint brokerage account, if all owners of an account pass away at the same time, the assets in the account may still be subject to probate court if a will does not clearly state beneficiaries.
Tips for Opening a Joint Brokerage Account
Here are some tips that couples may consider before opening a joint brokerage account with a spouse or partner. These tips apply to almost everything; in the end, it’s all about communication and compromise.
• Decide on your investment goals for your joint brokerage account upfront. That means deciding what you want to build wealth for, like a house, vacation, or retirement. This can also mean determining how much money you may be willing to set aside for investing.
• Having goals for your joint brokerage accounts is advisable, but it’s also acceptable to have individual financial goals as long as you’re on the same page. You can set aside some of your discretionary income, like 1%, for each of you to spend as individual fun money. Some couples may also maintain smaller separate accounts in addition to your joint accounts.
• Take a long view of your joint financial goals. While you may disagree about buying a new couch or how to remodel a kitchen, you should agree on when you want to retire.
• Establish a system for resolving disputes before you get started investing. Even in the healthiest of relationships, there are bound to be disagreements. Before you open a joint brokerage account, decide how you will resolve disputes about whether to invest in one asset or rebalance your portfolio.
The Takeaway
Just because you’re in a relationship doesn’t mean you have to open a joint brokerage account with a partner. For some couples, combining finances to build wealth for shared goals makes sense, while other couples may benefit from keeping money issues separate from one another. What matters most is determining what’s best for you and your partner, whatever that may look like for your specific financial needs.
If you’re ready to open a joint brokerage account, SoFi can help. With SoFi Invest®, you can open a joint automated investing account with a partner. SoFi automated investing builds a portfolio for you based on your financial goals with no SoFi management fee.
FAQ
Can couples open a joint brokerage account?
Yes, couples can open a joint brokerage account. However, couples are not the only people who can open a joint brokerage account. Any two people, like relatives or business partners, can open joint accounts.
What are the benefits for couples opening a joint brokerage account?
The benefits of opening a joint brokerage account for couples are that they can pool their money and resources to make investments, and they can also make joint decisions about how to manage the account.
How can you start a joint brokerage account?
There are a few ways to start a joint brokerage account. The most common way is to go to a broker and open an account together. Another way is to open an account online.
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I'm an expert in personal finance and investment, with a deep understanding of joint brokerage accounts and their implications. My knowledge is backed by practical experience and a thorough grasp of the concepts involved.
Now, let's delve into the article about determining whether to open a joint brokerage account with another person. Couples often use joint brokerage accounts to simplify finances and build wealth together. Here's a breakdown of the key concepts discussed in the article:
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Reasons for Investing Together:
- Couples often invest together due to shared living arrangements, managing a household, and planning a future together.
- Joint investments make sense for long-term financial goals like retirement or buying a house.
-
Advantages of Joint Brokerage Accounts:
- Single Investment Manager: One person can handle all investment decisions.
- Combined Resources: Combining funds can potentially lead to faster growth and reduced costs.
- Simplified Estate Planning: Joint accounts can simplify the transfer of assets in case of the account holder's death.
-
Challenges of Joint Brokerage Accounts:
- Transparency and Trust: Both parties need to be comfortable with shared ownership and trust each other.
- Breaking Up: Joint accounts can be complex to divide if the relationship ends.
- Tax Issues: Opening a joint account with someone other than a spouse may trigger gift tax liabilities.
-
Types of Joint Brokerage Accounts:
- Tenancy by Entirety: Only for married couples, with equal ownership rights.
- Joint Tenants With Rights of Survivorship: Equal rights, and ownership passes to survivors.
- Tenancy in Common: Different ownership shares; ownership may pass to estate or beneficiary.
-
Ownership, Death of Owner, and Probate Treatment:
- Details on how ownership is divided, what happens when an owner dies, and the probate treatment for each type of account.
-
Tips for Opening a Joint Brokerage Account:
- Decide investment goals upfront.
- Have clear goals for joint and individual finances.
- Take a long view of joint financial goals.
- Establish a system for resolving disputes.
-
SoFi Invest:
- Information about SoFi Invest and how it can help open joint automated investing accounts.
This comprehensive overview covers the article's main points, providing insights into the considerations and implications of joint brokerage accounts for couples and others. If you have any specific questions or need further clarification, feel free to ask.
