In keeping with our goal of addressing topics that are important to all nontraditional couples (not just same-sex couples), today’s article addresses a common pitfall that has been hiding in plain sight for years: the Multiple Party Accounts Act (“MPAA”), 20 Pa.C.S.A. § 6301, et seq. The MPAA has been on the books in Pennsylvania for a long time – since 1976 – but has been the subject of surprisingly little litigation and almost no public discussion, yet it affects nearly everyone and can have an enormous financial impact.
Here is how it works.
The MPAA is derived from the Uniform Probate Code and is really a part of the Pennsylvania statutes that pertain to estates and trusts. The MPAA applies to all bank accounts (checking accounts, savings accounts, trusts, certificates of deposit, etc.) that are held jointly by two or more unmarried persons for any reason other than business purposes. This means that, as long as the account is not part of a business venture, the MPAA applies to a joint account between unmarried heterosexual partners, between same sex couples, and between you and your mom. For the sake of this article, we will call the holders of such joint accounts “couples.”
The MPAA impacts couples in two primary ways:
- it determines what happens to the money in a joint account when one of member of the couple dies
- it determines what happens to the money in the account if the couple splits up.
In both instances, the effect of the MPAA may surprise you.
To be sure, when you and your partner open a joint bank account, it seems safe to assume that the funds deposited in that account belong to each of you equally – jointly. In fact, Merriam-Webster supports this safe assumption, defining “jointly” as “common to two or more.” This is where the MPAA comes in to turn this everyday notion of “jointly” on its head.
The MPAA basically states that the money in a joint account belongs to the person who put it there – not to the couple equally. That means that if a couple with a joint bank account splits up, unless they can agree otherwise, a court must determine what portion of the funds in the joint account were deposited by each party and distribute the funds accordingly.
The method that the court uses in determining who made the deposits is called tracing and it is nearly impossible to do. Think of your everyday joint checking account. You and your partner’s paychecks get direct-deposited. Your joint bills come out. You buy lunch for yourself. Your partner has a horrible Starbucks habit. You pay your car payments, your collective homeowner’s insurance, go on vacation, buy Christmas gifts, etc. At the end of the month, after money has gone in from both of you, come out for each individual’s personal use, and come out for joint uses, what proportion of the account can be traced to each individual?
Now imagine the nightmare of tracing such funds over 20 years of a couple’s relationship to determine who belongs to what portion of a large investment account. That is precisely what happened in the case Boyle v. King (Allegheny County Court of Common Pleas No. GD 07-021569). There, a lesbian couple split after a 20-year relationship, holding numerous joint business and personal accounts, including a large investment account, and then spent the next five (5) years (and an untold amount of attorney’s fees) litigating in an attempt to sort out the MPAA mess. Not good.
As mentioned above, the MPAA also impacts what happens to the money in a joint account upon the death of one account holder. The Act itself indicates that the money would pass automatically to the surviving account holder based upon a notion called the “Right of Survivorship.” However, a 2008 Commonwealth Court case called In re Estate of Amelia J. Piet has created confusion in this regard. There, the Court ruled that the funds in a joint account did not pass to the surviving account holder because the decedent had executed a will, before making the account joint, which left the money in the account to another person. The Court, in essence, held that the will trumped the MPAA and allowed the portion of the funds in the joint account that was attributable to the decedent to be inherited by her heirs, instead of automatically transferred to the other joint account holder.
What is the lesson in all of this? Keep your money separate or have a written agreement.
The former is easy, if sometimes inconvenient. The latter requires some forethought and planning (and help from an experienced law firm like ours). In order to establish a truly “joint” account where the money is owned equally by both members of a couple, the couple must enter into a separate agreement (such as a cohabitation or domestic partner agreement) stating that the money in that account is to be distributed to them equally in the event of separation and that, to the extent one party contributed more money to the account than the other, it was the over-contributing party’s intent to gift that amount to the other account holder.
Have you had issues in this area? Do you have a story to tell? Or do you just want to give your two-cents? Leave a comment.