Do I understand correctly that your W is having an A with another WOMEN? Regardless of an OM or OW, I do not think a LBS should tolerate an ongoing A that he knows about. I agree with others on here who say tolerating the A shows great weakness, which makes the LBS even more unattractive in the eyes of the WAW.
You could ask her to leave the house as long as the A is ongoing. I don't recommend you leaving, but that depends on your sitch. Especially since you have kids.
Definitely put into practice Sandi's 37 rules. You already know she is having an A so you can stop snooping.