Selling your business doesn’t necessarily mean you’ve left its liabilities behind.

Many business owners operate through a company because they understand the importance of separating business risks from their personal assets.

And that makes sense. A company is a separate legal entity, and limited liability is one of the main reasons people choose this structure. But there’s something I believe business owners often overlook.

What happens to the personal guarantees they’ve signed over the years?

It’s not unusual for banks, landlords, or major suppliers to require business owners or directors to personally guarantee the company’s obligations.

At the time, signing the guarantee may seem like a normal part of doing business.

The problem is that the guarantee can remain in place long after the circumstances that led to it have changed.

You might sell the business, resign as a director or move on to another venture. But unless the guarantee has been properly dealt with, the personal liability may remain. An interesting Australian Family Court decision highlights why this matters.

The Foley Case: When a Personal Guarantee Outlives the Business

In Foley and Foley & Anor [2007] FamCA 584, the husband had provided a personal guarantee for debts owed by a company to Australia Post.

He subsequently sold his interest in the company but did not obtain a release from the guarantee.

Australia Post later obtained judgment against him for more than $560,000.

The dispute eventually involved the family home, which was registered in the joint names of the husband and wife.

The couple sought a declaration that the wife held a greater beneficial interest in the property than the husband.

However, the court was not satisfied that the evidence established the claimed unequal ownership, and the application was dismissed.

What interests me about this case is how a commercial obligation entered into years earlier became relevant to the family’s personal wealth.

The business interest had been sold, but the personal guarantee had not been released. That’s an important distinction for any business owner.

Selling a Business Doesn’t Automatically Release Your Guarantees

When someone sells a business, the focus is usually on the sale price, tax consequences, settlement arrangements and transfer of ownership.

All important matters.

But what about the personal guarantees?

A share sale or resignation as a director does not, by itself, necessarily release a person from obligations they’ve personally undertaken.

That depends on the terms of the guarantee and whether the creditor has agreed to release them.

This is why I believe personal guarantees should be specifically addressed whenever a business is sold, restructured or transferred to the next generation.

It’s not enough to assume that because you no longer own the business, you’re no longer responsible for its obligations.

Selling your business and being released from a personal guarantee are two different things.

Does Your Company Really Protect Your Personal Assets?

A company structure can provide an important separation between business liabilities and personal wealth.

However, that protection has limitations. When a business owner signs a personal guarantee, they may create a separate personal obligation.

If that guarantee becomes enforceable, their personal assets may be exposed to creditor recovery action, depending on the terms and circumstances.

This doesn’t mean companies are ineffective for asset protection.

It means we need to understand where the protection begins and where it ends.

A company, family trust or other ownership arrangement may form part of an effective wealth protection strategy.

But these structures should never be considered in isolation from the personal obligations of the individuals involved.

What About the Family Home?

For many business owners, the family home represents a substantial part of their accumulated wealth.

Naturally, they want to know whether it’s protected if something goes wrong in the business.

One approach sometimes considered is holding the property in the name of a spouse who is less exposed to business risks.

However, simply placing a property in one person’s name doesn’t necessarily resolve every question about ownership or creditor exposure.

The legal and beneficial ownership of the property, together with the surrounding circumstances, can be important.

That was one of the issues in Foley.

The spouses claimed unequal beneficial ownership of their jointly registered home, but the court was not satisfied that the evidence supported their position.

The case doesn’t mean that a creditor automatically has access to the entire family home whenever one spouse has signed a guarantee.

It highlights why property ownership arrangements should be carefully considered and documented.

And there’s another important point.

Transferring assets after financial difficulties arise can create additional legal risks, including the possibility that certain transactions may be challenged.

Effective asset protection is about planning, not about moving assets out of reach after problems have developed.

Asset Protection Isn’t Something You Set Up Once and Forget

One issue I often see with business owners is that their structures are established when they first start trading and then remain largely unchanged.

But their circumstances don’t stand still.

Over time, they might acquire investment properties, take on larger borrowings, provide additional guarantees, establish new businesses or bring family members into their operations.

Eventually, they may sell the business or begin planning for retirement.

The structures that were appropriate ten years ago may no longer reflect the risks they face today.

That’s why I believe an asset protection review should consider more than which entities own particular assets.

It should also examine the obligations that may expose those assets.

For example:

  • What personal guarantees have you signed?
  • Are there guarantees relating to businesses you no longer own?
  • Have the relevant creditors formally released you?
  • How are your significant personal and family assets owned?
  • Are your existing structures still appropriate?
  • Have your business liabilities been considered as part of your succession and estate planning?

These are relatively straightforward questions.

But the answers can have significant financial consequences.

My Takeaway From Foley and Foley

What makes Foley particularly interesting is that the husband’s involvement in the business had ended, yet the personal guarantee remained an issue.

The subsequent dispute concerning the family home also demonstrates why property ownership and supporting evidence matter when creditor claims arise.

For me, the lesson is not that every business owner needs another trust or company.

It’s that asset protection needs to be considered as a complete strategy.

You can have a well-structured business and still expose your personal wealth through obligations you’ve signed along the way.

That’s why reviewing existing guarantees, ownership arrangements and business risks is just as important as establishing the right structures in the first place. Building wealth takes years. Protecting it requires the same level of attention.

When Did You Last Review Your Asset Protection Arrangements?

If you own a business, have provided personal guarantees or are considering selling or restructuring your business, it may be worth reviewing how those obligations interact with your family wealth.

At FWP Advisory, we help business owners and families examine their existing arrangements, identify potential risks and consider appropriate asset protection and succession planning strategies, working with legal and other professional advisers where required.

A review today may identify risks that would be much more difficult to address once a dispute has arisen.