Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.
NZ Herald 6 April 2013
Q&As: You can be regarded as being in a de facto relationship even if you don't live together
- Accountant gives bad advice on joining KiwiSaver
- Paying extra off the mortgage versus saving outside KiwiSaver
- 2 Q&As about young man who is NZ tax resident but still pays interest on his student loan
- Reader's student loan idea might work - depending on family dynamics
Question: I have noticed a number of letters regarding relationship property.
I had been told by an expert that the three years of a relationship starts from the date you are regarded as a couple. That is when you receive invitations to "Jane & John", rather than Jane and partner. They said that you don't have to be living together, and need never live together.
Is this the case? (Seems very dangerous ground and maybe a case for the country being celibate!)
Answer: You're quite right that it's possible for two people who each have their own home to be regarded as a de facto couple. But let's not get carried away. There's no way that the wording on a "Come to my party" invite alone could lead to your losing half your house.
Still, this is tricky stuff. "When people commence a relationship by marriage it is very obvious what the start date of the relationship is," says Deborah Hollings Chambers QC. "The commencement of de facto relationships can be much more difficult to ascertain. There is no public record of de facto relationships.
"The Property Relationships Act defines a de facto relationship as a relationship between two persons over 18 who live together as a couple.
"In deciding whether or not a couple live together the court looks at all of the circumstances including duration of the relationship, whether or not a sexual relationship exists, the degree of financial intermingling and dependence, ownership of property, degree of mutual commitment to a shared life, care and support of children, performance of household duties, the reputation and public aspects of the relationship. It also takes into account the nature and extent of common residence."
That's quite a list. But you don't have to answer "yes" to each item. For example, as already mentioned, you don't necessarily have to be living together.
"A couple may be in a de facto relationship where each party has a residence but they spend some time living in each other's houses and periodically return to their own residence," says Hollings Chambers.
"The court looks at all the circumstances of the relationship. And if there is enough evidence which, when viewed cumulatively, and through the application of common sense and proper reasoning, shows that the parties are living together as a couple, then the court will find a de facto relationship."
She adds that there's lots of litigation about whether people are living in a de facto relationship. "In most cases of course it's obvious, it is when they move in together. However, in other relationships it is much more difficult to define and involves a great deal of marshalling of evidence of all of the things listed above."
I guess that evidence could include the wording on an invitation.
Because of the uncertainty around this issue, "lawyers sometimes are instructed to do agreements contracting out of the Act stating that the couple do not believe they are in a de facto relationship. But if at some future stage a court declares that they were legally in such a relationship, or if they move into a de facto relationship, then they agree the following in regard to property.
"I have done that for couples who do not live in the same home all the time and are concerned that the act might apply to them."
We don't want to return to the bad old intolerant and inflexible days. But this issue was certainly simpler when the vast majority of long-term couples - or at least heterosexual couples - got married.
Question: I am self employed. My accountant told me there is no "advantage" to join KiwiSaver (possibly in the context that we are "supercharging our mortgage payments" right now, and KiwiSaver would take from the money used for that).
However, I would really like to do it and get the $1000 kickstart. I am 44 with no retirement savings and we own our own $350,000 home, with a mortgage of about $120,000.
My husband is 50, employed and in KiwiSaver. Even if my business has to put in my employer's contribution, surely it would worth it.
Answer: This makes me cross. After nearly six years it's about time accountants who give advice about KiwiSaver knew the basics of the scheme.
How can your accountant argue against your getting the $1000 kick-start? As a non-employee, you can join the scheme, get that money, and never contribute anything.
However, generally the best strategy for non-employees is to contribute $1043 a year - perhaps in the form of $87 a month - to get the maximum tax credit. As a self-employed person, there's no need to make employer contributions. They would apply only if you had employees.
The waters are muddied a bit, though, by the fact that you have a mortgage. Is it better for you to make contributions to KiwiSaver - after having joined - or to make extra payments off the mortgage?
The answer isn't clear cut. It depends on whether the total return in your KiwiSaver account - including tax credits but after fees and tax - will be higher than your mortgage interest rate. And nobody can know that in advance. So how do you decide?
If you had a huge mortgage, close to the value of your home, I would probably go for mortgage repayment to reduce your risk. But generally I think it's better to go with KiwiSaver. It gives you diversification away from just your house. If the property market falls but shares and bonds grow, you will be glad of the spread.
Also, there's nothing like being "in the market" to learn about investing, with all its ups and downs.
Question: I have lived in my house in an inner Auckland suburb for almost 30 years and hope to stay here for many years. The valuation (and rates!) have soared but I love my home and have many friends in the community.
I am 61, with two young adult children who are not quite fully financially independent. Single parenting and renovating/maintaining an old villa mean I still have a reasonable mortgage. I budget carefully and joined KiwiSaver early so I will have enough in my account to pay off my mortgage at retirement age (probably 68).
My questions are: In order to fund post-retirement expenses would it be better to save - outside KiwiSaver - some of the money I currently put into extra mortgage repayments? And when I retire, would it be better to delay the final mortgage payment by not withdrawing my KiwiSaver amount?
Answer: Probably not, and probably not.
As I said above, KiwiSaver tends to beat mortgage repayment for non-employees. And for employees it will almost certainly be better because they also get employer contributions. But you're wondering about non-KiwiSaver savings.
Your question, then, is whether the after-tax and after-fees return on those other savings will be higher than your mortgage interest rate. Because you won't receive tax credits or employer contributions on the savings, it's quite likely that the return won't be higher. I would therefore stick with the mortgage repayment now. It has the added advantages of being a risk-free "investment" and one that you don't need to research.
What about in retirement? From the point at which you can withdraw KiwiSaver money, you will no longer receive tax credits, and your employer no longer has to make contributions.
That makes your KiwiSaver savings much the same as any other savings. So, once again, the returns probably won't top the mortgage interest rate. I suggest at that stage you pay off the loan.
Question: I read with interest the first letter in last week's column. The family are right to feel that that the result for their son is unjust - in other words that he is deemed a New Zealand tax resident by the IRD, while being deemed to be an overseas-based borrower for student loan purposes.
The good news is that there may be hope. Under section 25 of the Student Loan Scheme Act 2011 a borrower can apply to be treated as being New Zealand based on the basis that this is fair and reasonable. Being required to be overseas because of one's employment is one of the grounds that the borrower can advance.
In the case of your correspondent they should definitely look at making such an application. There is nothing to lose, and potentially much to gain, by doing so.
Answer: Thanks. There's more info about this from Inland Revenue, and how to apply, at www.tinyurl.com/sloan01, and the section of the act itself is at www.tinyurl.com/sloan11.
If that doesn't work for you, read on.
Question: On the NZ tax resident musician with a loan, I sympathise with your correspondent regarding the son, still a NZ tax resident, but incurring student loan interest because work takes him overseas beyond the threshold six-month period.
I strongly support your suggestion that the son write to his MP, and I suggest that he also write to the Minister of Revenue, Hon Peter Dunne. I do so because my earlier correspondence with the Minister led to a student loan law change that advantaged my son (and others in a similar position to him) when faced with a roughly similar circumstance too complex to outline in this column. Go for it.
Answer: I can only echo the "go for it" - knowing that you might also help out others.
Question: Good on your correspondent last week for incentivising their son to graduate before paying down the student debt.
However, while it is now too late, there was an alternative solution available to obtain the 10 per cent early repayment bonus while maintaining the incentive.
The parents could have loaned the son the current value of the student loan rather than simply paying the student loan off. That way, the son could have paid off the student loan, received the early repayment bonus, and still owed the money to the parents, with that loan being written off on successful completion of the degree.
A missed opportunity and a reminder to constantly think laterally around family finances.
Answer: Good idea, but with a potential flaw. Let's say the son dropped out of uni. If he then had a student loan to repay, the repayment would happen automatically if he stayed in New Zealand, with money coming out of his earnings. And if he went overseas, there would still be that formal debt - his responsibility.
On the other hand, if he owed the money to his parents, they might have found it hard to get it back. In some family relationships, these things work fine. But not always.
* Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to firstname.lastname@example.org or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.