I've done it, and it can be great -- I worked with my wife for 5 years at a startup. The highs of startup life were higher, and at the low points, we were much better able to support each other than when we've been at different companies.
There is a scary moment the first time you do this -- is my spouse actually as good as I think she is? What happens if she actually sucks? This would be a huge problem in a marriage, respect is super-important. But we were already fairly confident, so we took the plunge.
The good/bad part is that you do wind up spending more time working -- dinner conversation and work sometimes get pretty blended. But at a startup, the pedal is pretty much all the way down anyway, and the same endless work hours that can become a real marital problem in a startup without her, were perfectly acceptable and more fun with her.
Some caveats: your spouse can't report to you. You have to work extra hard to avoid apparent favoritism, which is tricky if your spouse turns out to be a star at the company, or if there are political battles-- we tended to agree, since we're philosophically pretty well aligned, but had to make it really clear that it's consistent philosophy, not personal.
I'm skeptical that this would work for family members other than a spouse. Many of the benefits I'm talking about are pretty specific to a spouse, but the risks seem to apply to any family members.