The present research deals with three-dimensional nonlinear finite element analyses for a functionally graded adhesively bonded tee joint made of laminated fiber reinforced polymeric composites when the tee joint is subjected to different types of loadings. The out-of-plane stress components have been evaluated along the interfacial surfaces of bond line of the tee joint. Using the stress values, the failure indices are computed by using Tsai-Wu coupled stress failure criterion in order to predict the location of onset of failures within the interfacial surfaces. Accordingly, critical location is identified based on the magnitude of failure indices for varied load conditions. It has been observed that tee joint under bending load is vulnerable for early failure compared with that when the joint is subjected to tensile and compressive loading. The location of failure is found to be different in tee joint under bending load compared with tensile and compressive loadings. Further, efforts have been made to reduce out-of-plane stress concentration by implementing functionally graded adhesive (FGA) with appropriate smooth and continuous gradation function profile. Further, effects of material gradation function profile with varied modulus ratios on out-of-plane stresses and failure indices are observed along the different interfacial surfaces. Series of numerical simulation result significant reduction in peak values failure index. Based on the present research findings, the FGA is recommended for higher and efficient joint strength. Results also exhibit delayed failure onset and improved structural integrity in the tee joint structure with the use of FGA material.