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Principle of Substitution in the Accrual System

Are assets derived from an inheritance remain excluded from matrimonial claims?

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A key question in the application of the accrual system is whether assets derived from an inheritance remain excluded from matrimonial claims.

 

Sections 4 and 5 of the Matrimonial Property Act 88 of 1984 provide clear guidance in this regard. The Act states that an inheritance, legacy, or donation received by a spouse during the subsistence of a marriage does not form part of that spouse’s accrual. 

 

Importantly, this exclusion also extends to any asset acquired “by virtue of possession or former possession” of such inheritance, legacy, or donation, unless the spouses agree otherwise in their antenuptial contract or the testator or donor stipulates otherwise.

What Qualifies as Excluded Property?

This provision gives rise to what is commonly referred to as the principle of substitution.

 

In essence, this principle operates as a protective mechanism: where an excluded asset produces or is converted into another asset, the replacement asset may also remain excluded from the accrual.

 

For example, where a spouse inherits R1 million and utilises those funds to purchase immovable property, that property may also be excluded from the accrual calculation, despite being acquired during the marriage.

  • However, this protection is not absolute.

In B F v R F (2017/5018A) [2018] ZAGPJHC 699, the court confirmed that, for substitution to apply, there must be a clear and demonstrable nexus between the original excluded asset and the newly acquired asset. The court emphasised that the spouse claiming the exclusion bears the onus of proving that the new asset is indeed the “progeny” of the original inheritance.

The Burden of Proof and Tracing Requirement

Accordingly, it is not sufficient to merely assert that an asset was acquired using inherited funds.

 

The claimant must provide adequate evidence to trace the inheritance into the new asset.

 

Where funds have been mixed, or where the link between the inheritance and the acquired asset cannot be clearly established, a court may find that the asset forms part of the spouse’s estate and is therefore subject to an accrual claim.

Conditional Protection of Substituted Assets

In conclusion, while the Matrimonial Property Act 88 of 1984 does extend protection to assets acquired through inheritance by way of substitution, such protection is conditional. 

 

It depends on the ability to prove a direct and traceable connection between the original excluded asset and its replacement.

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After obtaining his BComm Management Sciences degree majoring in Investment Management and Financial Management, Ruan decided to study an additional year to include modules in Economics, Financial Accounting, and Marketing Management. In 2013 he decided to become a Financial Advisor at Hereford Group where he has achieved the following achievements to date: Mentoring and managing young advisers since 2015. Became the youngest Shareholder of the group in 2018 Won multiple awards of excellence and have always been in the top 3 performance for the Western Cape over the last decade Member of the MDRT (Million Dollar Round Table) Ruan is also a qualified representative on long- and short-term insurance products.

After obtaining his Honours in Accounting sciences (HCompt), whilst doing his SAICA articles at a small firm in Durbanville focusing on audits, trusts, and estates, Wouter joined the Star Motor Group of companies (now known as MyRide Group) where he was appointed as Financial Director and Operational Director of numerous subsidiaries. In 2013 he became a shareholder in the Group. Here he started Global Motor Administration with other partners, that provided and administered warranty products to the Star Motor Group and numerous other Motor groups. Due to his role in this company, he is also a Key Individual and a qualified representative for short-term insurance products. He decided to start his own Consulting, Accounting, and Tax Planning firm, that focuses on proper structural, financial planning, and tax assistance to Small and Medium enterprises that cannot afford a full-time Financial Manager in their Business. Wouter has been involved in trust management and estate planning since 2011.

After obtaining his Bachelor of Laws (LLB), Danie spent time developing his law skills in various law firms specializing in Labour law. He decided to start his own law consultancy firm, LE Consult Group, in 2009. LE Consult Group is a group of consulting specialists departments which include Labour Law and HR Solutions, Legal consulting specializing in commercial and compliance law, Trust & Fiduciary Services, and BEE Consulting & Advisory. He has been actively involved in trust administration since 2007 and also been assisting clients with estate planning and wills since 2012.