This is indeed your only option, if you wish to preserve your family. Allowing an affair to happen is jeopardizing many, many lives here with extremely painful consequences - and deep, permanent ones, too.
One can't help think that your wife's sister must have similar feelings or is, at the very least, aware of your feeling towards her. So, on some level, she too, has involved herself with you on a way-too-deep an emotional level. She may not be as aware, but that's hard to believe considering how deeply you feel about her.
I just think you need to concentrate ALL your mind and heart and energy on your family, because if you are a "man's man," then you truly understand where your obligations lie.
Distancing yourself from your sister-in-law and getting your life refocused is truly the best thing to do. She should understand this, too.
Best wishes to you.
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"Lord, we know what we are, yet know not what we may be."
Hamlet, Act 4, sc v
Wm. Shakespeare
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