Joint accounts provide flexibility to accountholders and ease administration for financial institutions by allowing husbands and wives, parents and children, and business partners to quickly access funds. Joint accounts allow parties to bypass obtaining powers of attorney and are easy for a financial institution to administer.
However, many banks have encountered problems when one joint accountholder accuses the other of withdrawing more than they are entitled to from the joint account. In these cases, banks often find themselves refereeing a dispute where the bank does not have all the facts.
Since at least 1985, Iowa law has been that joint accountholders have an undivided interest in the entire account. That makes administration for banks easier, because it means that either accountholder can freely withdraw funds from the account. In a decision issued on January 31, 2025, the Iowa Supreme Court provided guidance on how joint accountholders should resolve disputes over ownership of funds in a joint account.
The Iowa Supreme Court explained that each accountholder is presumptively entitled to half the balance in the account. However, that presumption may be rebutted if one accountholder can prove that a greater share of the funds came from them. Factors that are relevant to determining who is entitled to the funds include the course of dealing over the life of the account and whether joint assets were the source of funds.
In the most recent case, the evidence showed that a husband and wife had a joint account for many years. Prior to the husband’s death, he sold several assets that were titled in his name only and deposited the funds briefly in the joint account before transferring them to a joint account for him and his daughter. The Iowa Supreme Court determined that the case should be sent back for a trial to decide if that evidence was sufficient to establish that the wife did not have any entitlement to the funds.
This case shows how difficult determining ownership of funds in a joint account can be. Banks should not try to arbitrate these disputes. If a bank ever learns of a dispute between accountholders, then the bank may want to consider freezing all funds in the account until ownership of the funds can be resolved. Prior to learning about a dispute, since both accountholders have an undivided interest in the funds they can freely transact on the account.
When customers want to open a joint account, they should be aware that joint accountholders have the ability to withdraw all of the funds from the account. If a dispute arises between the joint accountholders then they will need to resolve that themselves.
With most financial products there is a tradeoff between efficiency and security. Joint accounts provide an efficient means for multiple parties to withdraw funds, but the tradeoff is the possibility that the joint accountholders may not always agree on how the funds should be used. Banks should do their best to avoid getting stuck in the middle.