Contracting-out agreements, interest-rate cuts and US tax policy
Q. I am buying a house under my personal name and using my KiwiSaver and my cash. My partner is not putting anything towards the property because she has no money. She will be paying me board of $300 every week into my account which I may use for the mortgage. We also will have a joint account to pay for other bills, such as utilities. I have asked my lawyer to draft up a contracting-out agreement where she has no rights to the property if we split or decide to get married one day. Is the property in question safe with me if anything is to happen to our relationship?
A. A contracting-out agreement is the right thing to do if you want to protect your property. You must each get independent legal advice for the agreement to be binding.
Family law specialist SelinaJane Trigg said it was also vital to review such an agreement regularly. If it became unfair, it could be set aside by a court.
‘‘There is only so much crystal ball-gazing into the future that we can do when we enter a contracting-out agreement,’’ she said.
‘‘Agreements are particularly vulnerable when the parties to it simply place it in the top drawer to gather dust and their circumstances change over time.
‘‘As time marches on, contributions – financial or nonfinancial – by the other spouse could mean the agreement becomes unjust, particularly if children come into the picture. That is not to say such agreements are a waste of time. It just means that, like your wills, they need to be treated as a living document if they are to retain their efficacy. This means the parties reviewing and updating the agreement regularly with the benefit of legal advice to ensure it takes into account their changing circumstances.’’
Q. As I am over 65 would I be wise to transfer a large amount of savings to my KiwiSaver rather then the bank? A. In general, you can get higher returns over the long term from a managed fund (such as KiwiSaver) than from having your cash in a bank account or term deposit.
To determine what type of fund might work for you, you need to consider factors such as how soon you need to the money, how you’d feel if markets wobbled a bit, and your goals.
KiwiSaver is a good option if you decide a managed fund is right for you, because the fees are lower, and, once you hit retirement age, there’s no restriction on withdrawing your money.
You should get personalised financial advice.
Q. If one had a term deposit, at an agreed interest rate of 3.6 per cent per annum and on an early withdrawal the agreed interest rate is to be reduced by 3 per cent per annum, what would the interest rate be lowered to? If it is reduced to 0.6 per cent, this actually is an 83.33 per cent reduction whereas a 3/100ths reduction is the correct method to employ, thus dropping the agreed interest rate to 3.492 per cent.
A. I sense this is part of an ongoing disagreement with the bank.
It comes down to common miscommunication about percentages versus percentage points. You hear people talking about their mortgage interest rate going up by 1 per cent when they really mean one percentage point.
I put your question to banking expert Claire Matthews, who said it seemed clear to her that, in this case, the bank meant three percentage points, not 3 per cent.
‘‘It is not uncommon for a difference between two percentages to be expressed as a percentage, although it is technically not correct.’’
Matthews said a reduction of a true 3 per cent of the original interest rate would be too little to discourage customers from making early withdrawals.
‘‘In order to manage liquidity banks do need to discourage early withdrawal of term deposits,’’ she said.
A. I have a moderate-sized investment in US shares. When I divest I understand I will pay tax of around 30 per cent of the value. I want to put the remaining funds in a bank and earn interest. Do I pay tax again on that interest, so effectively get taxed twice?
A. Craig Macalister, of Crowe Horwath, said the US did impose a 30 per cent withholding tax on income paid to foreigners. But our double taxation agreement meant they could not hold more than 15 per cent on dividends.
If you sold your shares and put the money in the bank here, you would pay tax on the interest you earn in that account.