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Eighteen months ago, Jessica was living a lifestyle most people only dream about -- debt-free, hundreds of thousands in the bank, owner of a kick-ass retail business and a net worth approaching eight digits. Then she got sued. Now she hardly sleeps. Her bank account is nearly empty. Her credit card balances have passed $100,000. She has tapped out her company’s line of credit, and the IRS is threatening to go after her unpaid taxes. Even though she is sitting on more than $5 million of real estate that she owns free and clear, no bank will lend her a dime against it.

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It’s a horror story many people know well. (I’m acquainted with Jessica but can’t reveal more details because of her ongoing case. “Jessica” isn’t her real name.) Life is full of awful surprises like hers -- just ask anyone who has survived a contentious divorce, the loss of a job or a major illness or accident. Unless your finances are as sturdy as a bomb shelter and you have an emergency plan in place, one big disaster can topple everything you’ve built.

That’s why I want to use Jessica’s trouble -- to the extent that I can -- as an object lesson, so you can understand how to avoid her fate. First, here are some things you should be doing right now:

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1. Separate your personal finances from your business. Paycheck aside, you should never rely exclusively on (or expect) your business assets -- or credit -- to fund your personal emergency expenses. Keep separate bank accounts and credit cards, and secure business and personal lines of credit now, not during a financial disaster when banks will turn you down.

2. Prepare yourself to be frugal. I operate under two monthly budgets: One is my normal budget, where I get to enjoy life within reason. The other is what I call “the financial cliff.” It’s the budget that tells me how little money I need to live on, and I can switch to it tomorrow if necessary. If I do make the switch, any excess cash on hand goes toward the unexpected expense.

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3. Have a team in place. The moment catastrophe strikes, talk to your accountant, attorney, financial adviser and business partner(s). Jessica didn’t do that; she thought she could handle it herself. Now she regrets not establishing a long-term financial game plan from the onset, which could have prepared her for the worst.

4. Know your blindside. Your instincts during peacetime may not serve you well during battle. When disaster strikes, do not operate on instinct. Have a carefully considered plan, and stick to it. This may sound crazy, but you need to take your ego out of the equation.

So here’s what a lack of preparation looks like: First, Jessica blurred the line between business and personal finances. When her legal bills started to roll in, she paid them directly from her business. As the expenses grew (now closing in on $500,000 and increasing every month), there simply wasn’t enough cash on hand to keep her business afloat. So she turned to her line of credit. After maxing that out, she then fell behind on her accounts payables (including taxes) and was forced to delay essential capital improvements that would have kept the business growing.

Consequently, her business’s operating earnings took a hit. Suddenly Jessica could no longer pay her personal bills. That’s when her credit card balances began to skyrocket and her credit score plummeted, and she ended up where she is now, with no idea when or how it’ll all end. Lawsuits can go on for a maddeningly long time.

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Jessica is a tenacious and independent spirit; she built her business by sheer force of will. But a business’s success is within our control; disasters often aren’t. Jessica now realizes she was blinded by confidence and didn’t recognize the brutal reality of her situation. I am confident she’ll bounce back. On her best days, she is, too. She’ll get past this and rebuild her life, and she’ll be smarter and tougher for the experience. But it would have been nicer, of course, to avoid the trouble at all. You still can.