Just use the first initial of each name.
So far it sounds like Y (You) and S (Spouse) have both cheated, and S is trying to involve N (Neighbor) in a cheating relationship without telling S2 (Spouse 2), meaning that S and N are both willing to lie, neither a healthy practice for a relationship of any length.
Why should you be comfortable with S's willingness to lie?
Why should S be willing to hurt S2? Is it then tacit acknowledgement that any hurt from past infidelity between you two is therefore okay?
I'm voting that if you're going to involve N and S2 it should be ethical, because regardless of how much S likes N, S2 has no choice. S could give N herpes, and then S2 as well.