July 18, 2012

Joint Bank Accounts

When non-married people have a joint bank account, the ownership interest is initially based on their net contributions to the account absent clear and convincing evidence to suggest otherwise. Prob C § 5301. If the net contributions cannot be determined, the parties to the account are generally assumed to have an equal interest in the account. Since most people do not keep meticulous records, the default rule of equal ownership is often applied.

The logical conclusion would be that each co-owner would not be able to withdraw from the account more than his or her contributed share. For example, if Able deposited $50,000 into a joint bank account with Baker, who deposited $250,000, Able should only be allowed to withdraw up to $50,000 without incurring any liability.

However, in 2003, a California Court of Appeal decision ruled the opposite and held that a co-owner could withdraw all funds from the joint account, interpreting such as a gift from the non-withdrawing co-owner, and thus not be required to reimburse the non-withdrawing co-owner for the amount taken out in excess of their contribution. The facts of the case are as follows. Holden Lee and Janet Yang were young successful professionals engaged to be married. Following the engagement, each deposited, in disproportionate amounts, sums of money into a joint account at Bank of America. Yang then found love letters written to Lee by other men just before the wedding in their home. Naturally distraught and aghast, she depleted the joint bank account in the amount of $347,000 as the proposed marriage crumbled unfortunately. This $347,000 represented far more than the share Yang contributed to the joint bank account. Yet, the court's ruling permitted Yang to retain the $347,000 because its interpretation of joint bank account statues. Lee v. Yang (2003) 111 CA4th 481

A recently proposed bill by Assemblymember Gatto (AB 1624) would amend the statutory scheme for addressing ownership interests of a joint bank account. The bill would make a party's ownership interest in a joint bank account be subject to their net contributions. This would be accomplished by altering statutory language. For example, if Jack and Jill opened an account and each deposited $50,000, neither party would be able to unilaterally deplete the entire account without liability. Rather, each would be able to make a withdraw equal to their contributed amount. In other words, the phrase "you get what you give" would apply. Therefore the bill would reverse the holding of Lee.