You did the right thing, and you said the right things; that last thing you said wasn't mean -- it was how you've been feeling about a bad situation that she's causing. The truth might be hard for her to take, but it _is_ the truth, and by soft-pedaling it you'd be giving her permission to not take it seriously.
If it was just you and her, I'd say a couple of sessions like this, along with setting boundaries like Brewmaniac said, would have some effect. But then there's that brother-in-law....
I'm usually the first one to say, cut the problem person loose and hang with somebody else. But I do know that with a brother or sister especially you want to make that extra effort, because you do share things and frankly because you're both going to be part of each other's lives in some way until one of you dies anyway. And you have started to make that effort, and in a constructive way I think. But if it doesn't work out.. if it doesn't get through to her or the brother-in-law undoes everything you try to do... you're going to have to back away until another time.
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