Know the risks of a shared bank account and bond

IT SEEMS only a generation ago – or, if you’re younger than 40 maybe two generations – that the roles of married couples were clearly defined and virtually taken for granted. The husband was the major breadwinner who also attended to the family finances and the wife focused on the children and the practicalities of running the home, such as buying groceries and cooking.

My parents typified that type of marital arrangement. My mother knew nothing about investments and insurance policies but everything about the price of bread, meat and vegetables. She worked part-time, but the money she brought in was over and above the main income brought in by my father, and was set aside for the tertiary education of me and my sister, and for luxuries, including the occasional overseas holiday. Her spending on household items was from a monthly allowance from my father, which meant she had to budget carefully to avoid running out of money towards the end of the month. My parents were frugal in their spending, but we lived a comfortable middle-class existence, and, apart from the mortgage bond on our home, we didn’t have a cent of debt.

I was lucky, and privileged: my parents enjoyed a happy, stable marriage. However, that traditional arrangement left the wife almost completely financially dependent on her husband and vulnerable to abuse in the case of an unstable marriage.

Fast forward to today. Couples enjoy equality under the law, may bring in similar incomes, and are more likely to share in their financial responsibilities and planning. Ideally, they need to be completely open with each other regarding their assets, income and debts.

Marital regime

For couples getting married today, the most equitable option, taking into account the possibility of divorce in the future (never say never!), is marriage out of community of property with accrual.

Here, each partner retains his or her estate, but assets accrued during the marriage are divided equally when the marriage dissolves on death or divorce. However, debt incurred by either of the partners do not form part of the accrual and creditors cannot come after the innocent partner, as they can if you’re married in community of property, where the two estates merge to form a joint estate.

Sharing accounts

While being open with each other about your finances is to be applauded, couples need to think carefully of the implications before sharing a bank account, or taking out a joint mortgage bond and owning a property jointly.

Johan Strydom, product head at FNB Fiduciary, says a shared approach to financial management is not without its risks. Even if you never consider the possibility of divorce, you cannot ignore the spectre of death, which in most cases will come for one of you before the other. What will happen to your shared bank account if your partner dies suddenly?

If your partner was the primary account holder, the bank is required by law to freeze the account until the estate of the deceased person has been wound up, Strydom says.

“This can be challenging for a surviving partner, because he or she will be unable to access the account, or the money in it, for the time it takes to wind up the estate,” he says.

He recommends that partners who use only one bank account consider opening separate accounts with enough money in them to cover essential expenses for a month or two if their partner dies.

Note that the winding up of the estate is likely to take longer than a couple of months – often a year or more, even for relatively simple estates. However, the surviving partner can approach the executor of the estate for an allowance for living expenses while the estate is being wound up.

Home loans and property ownership

Strydom says co-applicants on home loans can face similar problems. “When one of the co-applicants on a bond passes away, it impacts the entire credit agreement with the bank, which means that, in terms of the bond arrangement, the total amount owing on the loan will need to be settled.”

He says there are some rules of thumb that every financial partnership should adhere to. “If you have a bond, especially a joint one, make sure that both parties have adequate life insurance in place to cover the full amount of the bond,” Strydom urges, “and don’t ever be tempted to cancel that life insurance later in life, before the bond is fully paid off.

The older you are when a co-applicant dies, the more difficult it will be to refinance the loan or get credit elsewhere to pay it off.”

And what happens to a property owned jointly on the death of a partner? On the Cliffe Dekker Hofmeyr website, real estate law expert Natasha Fletcher explains that if you jointly own a property and your deceased spouse has bequeathed his or her 50% share to you, you can take transfer of that 50% share.

This must be done by way of a formal transfer through the Deeds Office, incurring conveyancing charges, but exempt from transfer duty in terms of the Transfer Duty Act.