Unless you are an extremely imaginative hermit, you use your relationships as material for your writing. At a minimum, writers draw upon the emotions they experience in their day-to-day lives with spouses, children, parents, siblings, and friends. Your character might be based completely on someone in your life, or perhaps your character has personality traits pulled from several people with whom you share a relationship. There's no escaping it. People you know end up, in some form, in your fiction.
If you create a character with your mother's soft heartedness, your sister's bad habit for buying too many shoes, and your best friend's organizational skills, there's not a huge chance that any of your relationships will be damaged. What if your writing muse leads you to craft a character based completely on your egotistical, lazy, no-good boss from her turned up nose to her hammer toe that juts out when she wears sandals? Sometimes, the passion of a relationship, good or bad, is the also the passion that fuels your writing. How do you separate the two, or should you?
Sometimes, you might just need to write a story about a character based on someone you know to help you process your own feelings. Someone close to you has disappointed you, made you angry, or makes you constantly worry, and you want to write about it. Perhaps that piece might never see the light of day, but it saved you several hundred dollars in psychotherapy fees. But what if you're really proud of what you wrote and think it's publishable? You got some thinking to do before you market the piece.
The simple answer, if you want to try to publish the piece, is to allow the person on whom your character is based to read the story to give his or her blessing. Certainly, you'll want to explain that it is fiction, but there are strong similarities between the character and the person in your life. If you've written about a strained relationship that remains that way, it might be a challenge to get the "all-clear" at best, but it might further test the relationship at worst.
The other alternative is to revise your character just enough so that it doesn't destroy the integrity of the story or the real-life relationship. Regardless of whether your real life "character" consents to the character in your book, there should be plenty of differences between the two. But if your real life character is the type to get angry or even litigate, extra revision to your fiction may be required. Yes, this might be easier said than done, but it's important to put the relationship first...unless it's your boss with the hammer toe and you already have a new job lined up.
What about you? How do you use the characters in your life in your fiction?