The Pitfalls of Investing or Buying Assets in Another Person’s Name.


In 2011, my father, who was seventy, passed on. Even though he was educated and had retired as a Commissioner of Police, he died intestate (i.e. without a will). My father was extremely close to his elder brother and relied on him to make some investments on his behalf. This closeness meant that my siblings and I knew we had two dads, where my uncle held the position of ‘big daddy’. When my father passed, ‘big daddy’ knew more of my father’s assets than we did. As I pen this article, I honour the memory of both “dads” and specially acknowledge and honour ‘big daddy’ as a man of integrity who genuinely loved my dad. My father passed on before his elder brother and my ‘big daddy’ had the responsibility of ensuring we had access to all my father’s estate. He called a meeting where he handed us a document on which he had listed ALL my father’s assets.

Now back to the essence of this article, can you imagine if “big daddy” wasn’t a man of integrity?  My siblings and I would not have benefited from the assets known only to my ‘big daddy’. In this article, I will delve into the complexities, risks and potential challenges associated with investing in the name of acquaintances, be they close family members or friends, and I will discuss the need for careful consideration.

Understanding the Risks Involved

Opportunities for investing or acquiring assets often come with associated risks, which can turn these opportunities into financial burdens if not properly managed. Understanding the risks of investing or buying assets in another person’s name is important for several reasons. It empowers individuals to make informed decisions, protects against potential legal complexities, and ensures that such financial collaborations align with personal goals. On the other hand, ignorance of these risks can lead to financial loss, strained relationships, and even legal battles, emphasizing the necessity of a cautious approach to collaborative investing.

Consequences of not being the legal owner

Loss of property rights and legal ownership – When you buy property in the name of someone else, you lose legal ownership. The absence of legal ownership places you at a significant disadvantage. Without clear legal rights as the legal owner, you may face challenges asserting your interests, impacting decision-making authority, and potentially resulting in financial loss.

Lack of Legal Recourse: The lack of legal ownership often translates into a lack of legal recourse. In the event of disputes or disagreements over this asset, the actual owners may find themselves with limited options for legal action, leading to frustration and financial vulnerability.

Risk of losing the asset: The nature of man is to be selfish and think of himself first. Someone holding another person’s asset can come under financial pressure or succumb to greed and get tempted to apply and convert the asset in his care. The person in whose name the property is acquired is the one recognized by law as the owner and so can sell the property against the wishes of the true owner. They can also encumber the property by taking a mortgage against the asset in their name.

Exclusion from owner’s estate: Another consequence is if the pseudo owner dies while holding an asset on behalf of the real owner. At death, if there is no will, the asset defaults to the estate of the deceased whose heirs can deal with his/her estate as they deem fit. In such circumstances, the real owner has no choice than to be at the mercy of the heirs of the deceased. If an asset you purchased is in the legal name of another person, you have no legal right over that asset and cannot transfer or gift the property to another person. On the flip side, the real owner can die before the one in whose name the asset was acquired. Here, survivors of the real owner may find it challenging to establish ownership and claim these assets, as legal ownership might not have been clearly defined.

Family Disputes: Another situation is where a couple jointly purchase assets or investments in the name of one partner. This has the potential to cause problems in future when each party has a different decision on their share of the property; e.g. sale or inheritance decisions. The lack of a clear legal owner in a jointly owned family property can lead to undesired legal battles between couples or among siblings after the passing of a parent. The absence of legal clarity exacerbates familial tensions and results in unnecessary emotional, mental and financial pain.

Challenges in managing Investments: Imagine purchasing shares in the name of another person. Such investments often result in shared/lost control. This means you cannot manage your investments as you desire. For example, if you have cashflow requirements and need to trade some stocks you bought in their name, you have to instruct the pseudo-owner to do this. You are at the mercy of their availability and competence to do this. This potentially restricts how you manage and grow your investments.

Inability to Leverage Investments as collateral for Loans: If the investments are not in your name, you may face challenges in leveraging them for additional financial opportunities or using them as collateral for loans. Banks and financial organisations often use the value of assets as collateral when extending loans or considering you for certain services. If the assets are in another person’s name, you cannot add them to the value of your investments to access financing for other opportunities.

Visa restrictions: Investing in the name of another person poses challenges when it comes to visa applications that require a demonstration of financial capacity and net worth. The lack of direct ownership and control over the assets can create difficulties in providing verifiable documentation and may raise questions about your financial independence and stability. This is one negative consequence of investing in the name of another person amongst others.

Complications with Tax computations: Investing in another person’s name means the income from such investments are also not in your name and this may lead to tax evasion and tax frauds, resulting in serious legal consequences for both the beneficial and legal owners involved.

Impact on Personal Relationships:  There is the risk of collaborative investments between friends or families negatively impacting relationships. Disputes over financial matters often spill into other aspects of family life, affecting relationships. This is because such investments made may lead to breaking trust causing resentment and strained personal connections.

Reasons why people buy assets in another person’s name

Price discounts & access to investment opportunities: From my coaching experience, I discovered that one reason people buy assets in other persons’ names, is to take advantage of price discounts offered to employees by organizations or to access opportunities that company cooperatives offer. For example, the recent sale of the shares of a telecommunication company offered the shares to staff at a discount. Some of the staff invited their friends/family members to buy through them to access the discount. Similarly, some cooperative societies of companies often create opportunities for their members to own assets (land, houses or cars) at negotiated discounted prices. Since these opportunities are strictly for members, acquintances of the members have no choice but to acquire these assets in the names of the members they know. Whilst the discounted prices make these assets accessible to non members, I recommend weighing the short-term benefits against the long-term risks/potential losses.

Corruption and money laundering: Another reason people buy assets like this is to hide stolen money. In cases where assets are acquired through illegal means, individuals might invest in other people’s names to shield those assets from potential confiscation by law enforcement or regulatory authorities. Buying in another person’s name helps to divert regulatory authorities from tracing misappropriated funds to the thief.

Lack of knowledge and information: Sometimes, there is genuine love and trust between two people who are comfortable enough to purchase in the name of one party. They do this ignorant of the disadvantages of excluding one of the names in the documentation. This is often the case when couples invest together. There are many disadvantages to the party whose name is not on the legal documents as these assets without their names cannot form part of their Net worth.

Emotional manipulation and false cultural narrative: Emotional blackmail and  manipulation is another reason couples exclude their partner’s names from the legal documentation of jointly owned assets. One party may manipulate the other into believing they need to give up their rights to an asset because they are in love. From the cultural point of view, some cultures still discourage women from owning properties. Whilst there should be trust between couples, the right thing needs to be done and legal documentation of owners of joint assets should be in the names of all owners. Investors must also understand what they are giving up when they permit exclusion of their names from the legal documents of jointly owned properties. 

Guidelines and mitigation strategies to securing your investments

  • If you currently have assets, investments or business interests in another person’s name, take immediate action to transfer these back to your full legal names or to a legal entity that clearly states your ownership and protects your interest. To avoid confusion and conflicts down the road, couples desiring to purchase assets jointly, should have the FULL NAMES of both owners on the documents. For clarity, the names on the documents should be the first, middle and surnames of each party. For example, Mr Jide Obi Hassan and Mrs Joke Obiageli Hassan, not Mr and Mrs Jide Obi Hassan.
  • To overcome these challenges, estate planning is crucial. Having a clear and legally binding WILL ensures that the deceased’s wishes are honored, and provides a roadmap for the distribution of assets. This proactive approach simplifies the inheritance process and helps prevent disputes among survivors. A WILL is very simple to create. Write a WILL identifying all your assets and your desired actions for these assets on your demise. Save your loved ones emotional and financial stress related to fighting over assets. Remember you have to ensure all your assets are in your full legal names before including them in a WILL.
  • Investors are encouraged to seek professional advice before making financial decisions involving others. Seeking professional advice is paramount. Before engaging in collaborative investments, consult financial advisors and legal professionals to ensure clarity, transparency, and protection of your financial interests. It is cheaper to pay for professional services than be exposed to possible financial losses from poor legal documentations. Legal professionals will help draft clear agreements that outline ownership rights, responsibilities, and dispute resolution mechanisms. Clearly define the roles and responsibilities of each party involved in the investment. This ensures transparency and helps avoid misunderstandings.

In summary, investing or buying assets in another person’s name comes with inherent risks. Financial challenges, trust breakdowns, vulnerability to fraud, and legal complexities can have far-reaching consequences. I have written this article for readers to be vigilant and informed. Awareness of the potential pitfalls empowers individuals to make sound financial decisions.

Dedicated to the loving memory of my ‘big daddy’, Chief Emmanuel Adeleke Aturamu, the Eleodi- Aboluwodi of Igede-Ekiti (Sept 17th 1937 to Feb 29th 2016)

Bimbo Komolafe FCA, FCIB writes from Lagos. She is a Certified Financial Education Instructor, a Fellow of the Institute of Chartered Accountants of Nigeria and a Fellow of the Chartered Institute of Bankers. For more tips from the finance coach follow her on:
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