For example, always make sure that a second member of your management team is in the room when delivering the bad news--even if your sister-in-law insists on discussing the matter with you alone, Leffler advises. Also, consider asking her to sign a release so that she can't sue your company months or even years from now, Leffler says.

Of course, avoiding litigation with a fired family member may be easier than avoiding bumping into her at the next family birthday party or holiday dinner. "This person doesn't disappear from your life, and whether you see [her] just at family functions or every day, you still want to do your best to preserve the relationship," Leffler says. "Just be open to the possibility that there might be nothing you can do to avoid an acrimonious departure."