Couple splitting up/re-writing lease?

[Karen R.]

A couple has rented a single family home from us for almost 4 years. The lease expires on July 31st. They are not married and are now splitting up. Both are on the lease. He pays the rent to me from his checking account and he also paid the security deposit. She wants to stay and wants her sister to move in. Assuming everything checks out with the sister (references/income/credit check) I had planned to get another new deposit from her, return his deposit (less any damages due to him), and create a new lease with my original tenant and her sister. Does this make sense?  How would you handle this type of situation?