Wow, Andrew. Lots of talk. Lots of emotion. You might still be in the numb stage, and the feelings might intensify in the upcoming days. Hang in there.
The living arrangement proposal sounds extremely stressful to me. Think about what you want to do.
I think she might be lying about the SIL's statements.
The "we had so much potential" statement is useless. My H has said similar stuff. It just makes everyone feel worse. If there was so much potential, how come she doesn't want to make it work now? You did the right thing by listening.
