We had a similar situation at the ALF where I was the DON for 2 1/2 years. The gentleman involved was married, but because they didn't get along, his wife lived in another facility; the lady was unmarried but had some dementia. (Actually he did too, but he wasn't as far down that road as she was.) The staff was scandalized and wanted to tell his daughter, but since he was still driving and managing his own finances, I came down on the side of privacy. His lady friend, on the other hand, had a daughter who was her POA and managed everything for her, so we did inform her of the relationship.
Fortunately for all concerned, the daughter was OK with all of this, mainly because her mom was so happy! But I discovered that education about these matters is sorely lacking among long-term caregivers; the myth that older adults aren't interested in sex is stubbornly persistent, and when they defy the stereotypes, facility staff are often unwittingly punitive.........either by forbidding them to be alone with the object of their affection, or by telling their families of the affair, sometimes causing them to be moved to another facility and thus separating the couple.
Then when you throw dementia into the mix, it gets even more complicated. What happens when one party is still relatively 'with it', and the other is not? The State regulations say that one of our duties as a facility is to prevent abuse of all kinds, presumably including resident-to-resident abuse........and clearly, having sex with someone who is not competent to make the decision to do so IS abuse. That vulnerable resident must be protected. But what if SHE doesn't feel she's being abused? What if she wants to be with a man who finds her attractive and provides her with sexual gratification? What about her rights as a human being who, even though she has dementia, is still an adult?
The hard and fast rule is, there IS no hard and fast rule..........each case has to be dealt with on an individual basis.
That said, in the OP some mention was made of changing the male resident's meds........The ALF needs to be extremely cautious about that, as it is also considered abuse to manipulate a resident's medications to encourage/force them into compliance with acceptable behaviors as determined by the facility. It's called a chemical restraint, and is against the regulations of most if not all states.