This didn't happen overnight and it won't end overnight.
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Question - because I know this is going on and she knows that I know, should I be monitoring her emails and various electronic communications?
That is a decision you have to live with. Snooping is invasive, controlling , and ends up hurting you WAY more than her. It is also a form of deception, and betrayal. This isn't tit-for-tat here.
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This affair she is having is with a guy who is married with wife and family in another state, should I confront him?
My answer would be, to NOT do this...
He is not the reason you are here, just a symptom of the reason. Lowering yourself to his level....only you can live with that choice.
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I am now taking on 17 year old daughter of wifes to try to get her through school. She is in a downward sprial herself? Should I make W responsible instead of me...
Let me get this straight.....you have been with her for 9 of her years, yet she is STILL just your wife's daughter ?
The relationship between her and her Mother is theirs, not yours. It is not your job to fix that, it is your job to not interfere with it. take responsibility for your relationship with her....and only yours. If she has looked to you in the past for guidance, then do that.
There will be links coming along shortly that Cadet gets thanked way to seldom for....: )
Read them and understand what a person in crisis looks like....
Until then, slow down and give a little more info that might be helpful to others....