Should you invest in your personal name?
Let’s say Zanele goes out and creates massive wealth for herself in her personal name. She has a massive 3 story house, a large buy to let portfolio, a fancy Ferrari, red of course, a beach house overlooking Clifton beach in Cape Town, multiple businesses (she is a whizz at starting new businesses!) and obviously, she has enough jewelry to make the Queen raise a jealous eyebrow. Zanele owns a superyacht, because how else can one get a perfect view back over the bay onto one’s exclusive beach house in Clifton?
Zanele is worth R30,000,000! Go Zanele GO!
Out of the blue, one of Zanele’s trusted business partners uses some of Zanele’s wealth as collateral to invest heavily in some shady Bitcoin deal which promised paradise but delivered hell. Suddenly Zanele needs R4,000,000 to dig them out of the mess BUT she doesn’t have it in liquid cash thanks to that irresistible diamond sale Jenna Clifford just had.
Can the creditors come after her lovely 3 storey home?
What about her red Ferrari?
That beach house in Clifton? Gulp…please say no, the lavish cocktail parties that spill out onto the white sands of Second Beach overlooking the Atlantic are OUT of this world people!
What about her buy to let properties?
The superyacht? Noooo…literally everyone LOVES lazy Sunday afternoons spent suntanning on the deck sipping Moët & Chandon while freshly caught fish sizzles on the braai.
Yip. Absolutely everything is suddenly up for grabs, there is ZERO protection from the vulture creditors that are swarming around, ready to swoop down and devour her wealth.
But here’s the thing. Bad business decisions are not the only threat looming, ready to shred her carefully created wealth to pieces.
We live in a country that has one of the highest levels of divorce. Four in ten marriages end in divorce. So, what are the chances of Zanele’s partner, Kagiso, running off with a young Latino woman he meets on conference in Mauritius? Do you think there is a good chance you will find Zanele down at the champagne bar on the beachfront with 5 of her closest girlfriends plotting ALL kinds of evil to befall Kagiso?
If their marriage contract stated that they need to share all assets at the time of divorce, you can bet Zanele will be scrambling to ensure Kagiso does not walk away with half of her hard-earned wealth. In this scenario, the only people who win are the lawyers. A long bitter fight ensues and eventually, because Zanele can afford the better lawyer, instead of handing over half her wealth, she gets away with handing over a third of her wealth to Kagiso. It still hurts.
But what if Zanele and Kagiso manage to weather the storms of marriage and stay together until death do us part? Well, that’s really special, commendable even (provided they were both happy and growing) but even so, Zanele is now dead.
The tax man rubs his hands in glee. Money for nothing…between capital gains tax on the properties she owns AND estate duties, the estate is liable to pay over R33,000,000 of the original R100,000.000. Choke!
Let’s say Zanele left one of the buy to let properties to Kennedy, her only son. At the time, Kennedy is studying at University of Cape Town and is so broke, he can’t even afford to pay attention. Who will be responsible for paying for the transfer fees to move the property from Zanele’s name over to Kennedy’s name? The estate. Which means there is even less cash for the two remaining children, Anathi and Ntoli. Not to mention poor Kagiso, who is reeling from the death of his soul mate but has to deal with the grim task of trying to fend off the creditors and family members who crawl out of the woodwork, trying their best to take a piece of the wealth left behind.
Sure, it is easier to set it up this way. BUT there is no asset protection. Is ‘easy’ in the beginning really worth the soul shattering hard in the end? Always consider the risks. How DO you protect the wealth you are building?
Well, you are thinking, kudos to Zanele for smashing financial abundance out of the park, but I am not quite in THAT league. I am just starting out so what should I do?
Tune in next week to consider powerful alternatives…