You made the right decision asserting your boundaries. That proposal was cake eating on her part, if my novice brain understands it correctly. And despite the tough love, and perhaps anger from her, your boundaries that you set are very respectable. Had you agreed to it, your children would suffer through the tension and your misery.
Lastly, it puts you squarely in the friend zone. It's all (love/marriage) or nothing, right? I think so.
