It isn't often that you see someone file for personal bankruptcy with debts of more than $500 million, as Edra Blixseth, the owner of Yellowstone Club in Montana, did last week. Yet even though Blixseth's situation is unusual by any measure, the proximate cause of her personal bankruptcy is something that's all too familiar to many small-business owners: signing personal guarantees for business-related debts.

In principle, the legal structures of a business—whether it's a corporation or a limited liability company—are designed to create a separation between the business and its owner. Indeed, this was a critical innovation in evolution of capitalism, enabling people to build and operate companies without being personally liable for every action of the business.

In practice, though, small-business owners are often obliged to breach the "corporate veil" for even routine activities. When I started NewWest.Net, I was immediately inundated with offers for business credit cards—but all of those offers ultimately required that I personally sign for the account. In the case of American Express, I was even required to link my personal and business accounts, which has ended up being a tremendous headache.

If you want to get a bank loan for your small business, that will in many cases also require a personal guarantee (and a decent personal credit score). Even government-subsidized loan programs, from the Small Business Administration or local economic development authorities, usually require the owner to sign on the dotted line and sometimes even pledge his or her house as security.

When confronted with these requirements, I've simply gone ahead and signed, as I suspect most small-business owners do. But the intermingling of my personal and business affairs, while inevitable, still makes me nervous; my company is a dominant enough force in my life even without my assuming its financial liabilities.

As Edra Blixseth's case demonstrates, even a not-so-small-business owner can easily get into trouble with this sort of thing. Apparently confident she'd emerge from a bitter divorce battle with Tim Blixseth with plenty of cash, she personally guaranteed everything from her son's $13 million real estate development loan to the Yellowstone Club's multimillion-dollar legal settlement with cycling great Greg LeMond.