Wow, that is tough. I don't know if I would have been able to do that if the person was a friend. Though I doubt I would have hired them in the first place. I know how tough it can be to work in the same place with someone that you are close with . Sounds like you made the best decision in the end.
Unfortunately I never hired him as I wouldn't have either. I wouldn't bring friends into the same business as it just would't work. He was lucky in the end as he was kind of protected and lasted a few more years than he should have.