Since the introduction of BEE in 2003, fronting has become an increasingly common practice. Fronting often involves white business owners, who in order to gain contracts and score B-BBEE points, name black employees as shareholders – even though those employees play no influential role in the business. Now, with many male business owners naming their wives as Trustees and shareholders of the business, fronting has an added dimension. “All too often, the husband runs the business, while his wife has no strategic involvement and makes no operational decisions”, says Israel Noko, CEO of B-BBEE advisory firm, NPI Governance Consulting.
“This poses a risk for wives who are often left in the dark about their liabilities as shareholders”, adds Noko. It may seem an inviting prospect for couples to become partners in a business, but the wife must make sure that she knows the full extent of her rights and liabilities.
Husbands form Trusts for various reasons. Some husbands set up a Trust to provide for their families, some to gain benefit from no longer personally owning an asset. Some use the family Trust to avoid unwanted claims (such as from an ex-wife) on their Estate. A revocable living Trust provides flexibility, enabling men to control how and when their assets will be distributed to loved ones.
According to Noko, “There are fiduciary obligations on Trusts when it comes to customers, suppliers, creditors and tax. We often see cases where a husband passes away and the Trustee wife, who was never involved in the business, finds herself having to deal with creditors and contractual obligations to customers.”
With the increase in fronting, wives need to fully understand their liabilities, the structure of the business and how the monies are distributed. They must ensure that they have something on paper that protects their rights. All possibilities should be carefully examined and procedures clearly stated. For instance, in the event of divorce or her husband’s death, is the wife entitled to the proceeds that would normally go to her husband?
Traditional customs and marriages in South Africa create further complexity since there may be no piece of paper that states that a man and woman are legally married. Should her husband die, the question arises of whether a wife married in such a manner is still entitled to Trust benefits.
It is vital for a wife to safeguard her future. Even though divorce, or her husband’s passing may be the furthest thing from her mind, it is still a possibility and steps must be put in place to safeguard her should it become a reality.
Noko advises women to arm themselves with information, “If a wife is asked to be part of a Trust, she must make sure that she gets a copy of the Trust Deed and understands the type of Trust she is involved in – for instance, is it a Discretionary Trust? She must also be aware of the distribution of assets policy and the Trustees obligations to beneficiaries.” Women owe it to themselves to get professional guidance and advice in order to understand their liabilities and risks – and benefit over the long term.