One way or the other we all have assets or investments, regardless of the form or value. I have read, listened to or been asked to advise on how best to safeguard or protect assets or investments. Usually the assets referred to are immovable ones or shareholding in businesses.
Properties may include the matrimonial or family homes and other properties an individual or family may have acquired over time such as commercial or industrial land and buildings. Investments involved are usually shareholding in companies that are not listed on the Zimbabwe Stock Exchange. These can be in businesses that are jointly owned with a spouse, with family members such as siblings, with friends or other business associates.
Examples of pitfalls of not safeguarding assets and investments
Before going into the details of safeguards one might consider in protecting assets and investments I wish to bring to the fore some of the real life challenges or pitfalls society faces. These include:
a) Disputes over ownership of immovable properties and shareholding in unlisted companies. These are common place.
b) Disputes over the distribution of assets in a deceased estates. At times there is more than one spouse or set of children, for whatever reason. Without expressing any views on the existence of such set ups I however wish to point out the reality that exists. It appears the “Marriages Bills” seeks to address some of the issues.
c) Loss of ownership documents such as title deeds or share certificates.
d) Assets held in other people’s names such as friends, relatives, for whatever reason, with no safeguards
e) Unauthorised disposed of assets by those in whose names they are registered, for example one’s children.
Safeguards or measures in mitigation
To mitigate or counter the above mentioned pitfalls there are several measures one might consider as safeguards. Some of the measures, explained below, might appear obvious to you but certainly not to everyone.
1) Do not procrastinate or postpone taking action. Procrastination is a thief of time. Accept the reality that every asset or investment worth something has a risk. It can lose value or be lost.
2) Seek financial and legal assistance before undertaking a material business or financial transaction. What constitute materiality is judgmental relative to one’s circumstances.
3) It is advisable to acquire immovable properties with title deeds
4) Obtain title deeds to immovable property as soon as possible by ensuring conveyancing work is paid for and done at the time of acquisition.
5) Where a property is subject to cession ensure all the necessary cession documents are in place. There are many properties such as high density houses which are on cession.
6) For businesses where one has joint shareholding with other parties such as friends, relatives or some other business associates ensure there are shareholding agreements, share certificates and you familiarise with the company’s Articles of Association. It is easier and advisable to prepare all the necessary paperwork at inception or on commencement of a business relation before parties are tempted by the prospects of making or having more money. Appetite grows with eating.
7) Where arrangements such as dealership, agency or distributorship are involved ensure there are valid agreements in place, properly signed, where permissible with exclusivity clauses.
8) Have a culture of reading contracts or agreements before signing. It is very easy to sign rights away owing to negligence, excitement or over-trusting.
9) Where you are running a business from rented or leased premises ensure there is a valid lease agreement, preferably a long lease.
10) Avoid making major structural or other value adding changes on a property that you do not own unless you have agreed on the treatment thereof with the landlord. A lessee rarely, if at all, has more rights than the lessor.
11) Carefully structure a joint venture arrangement to ensure that you do not lose control of assets and income streams and attendant rights.
12) As regards ownership of immovable properties many options are used. For example, a matrimonial or family house can be registered in the name of one of the spouses, both spouses, family trust, a child’s name, or company owned and controlled by the family. There are merits and demerits associated with each option. If you wish to find out more on a family trust please contact a legal practitioner who is a Notary Public.
13) Traditionally, to avoid or minimise disputes over assets in a deceased estate, people write wills. Sadly, many people including prominent ones die without leaving behind wills and estates have had to be distributed in terms of the general laws of succession. It becomes complex where more than one spouse is involved and there are different sets of children.
14) There are numerous cases where assets over the years have been lost due to the following:
a) Forced or rushed sales
b) Attachment and execution following a Court order on an overdue debt, including even a guarantee or surety to a third part.
c) To maintain lifestyle where income earning capacity has dwindled or savings have been exhausted.
15) To reduce chances of the situations in (14) above happening the following safeguards are advised:
a) An individual or company should maintain a balanced portfolio of non-liquid, semi-liquid and liquid assets. Before resorting to non-liquid assets such as immovable properties one can make use of liquid or semi-liquid assets.
b) Where borrowings are involved it is advisable to have a model or policy as to what proportion or type of assets to or not to expose to debt, for example the principal private residence also known as the matrimonial home. There are cases where people have lost everything worked for over the year due to debt that has gone wrong. Some assets have been lost to “loan sharks”.
16) Provide for major life commitments such as school and university fees. These are commitments which can be heavy if not well planned for.
17) Financial emergencies have also resulted in assets being lost due to the limited time available to look for viable options. Such emergencies may include medical, litigation, loss of employment, struggling business, business transaction gone wrong, accident, and many others. If one engages professionals such as financial advisors, lawyers, bankers, and others workable solutions will be found. Remember some people have been in your situation before. Where litigation is involved do not ignore processes.
18) Lifestyle plays a significant role in protecting assets. Lifestyle pitched too high relative to income or not adjusted during difficult times can have far reaching implications such as debt or more debt, loss of assets, financial instability and even stress related ailments. Prudence or conservatism is advised on expenditure. People are advised to manage their entertainment needs, expectations and budgets. Entertainment can be emotion filled. Remember where emotions dictate the pace the brain becomes subordinate.
19) Death of a bread winner or major shareholder or driving force behind a family business can be catastrophic. It is important to have clear succession or business continuity plans to avoid the collapse of a business and source of income.
20) Mergers and acquisitions not properly done, or done without prior due diligence of cultural and other relevant issues can be a recipe for disaster. This can destroy assets and one’s source of income.
Godknows Hofisi is a legal practitioner, chartered accountant and business rescue practitioner. He is also a consultant in deal structuring and tax. He writes in his personal capacity and can be contacted on +263 772 246 900 or gohofisi@gmail.com
