Face recognition corruption in Photos

Did it only happen recently?

If yes, the easiest way to recover from this would be to restore the previous version of your Photos Library from the Time Machine backup. But do not overwrite the current version, so you can recover the most recently imported photos from the current version.

However, restoring the library from your backup will be more involved, if you are using iCloud Photos with optimize storage. The merged faces will have synced to iCloud Photos, and you would have to erase iCloud Photos, but your backup copies of the library will be incomplete, because of the "Optimize" feature. In that case you cannot erase iCloud iCloud Photos without having a complete copy of an not optimized library.

Then renaming the merged faces will be less work than recreating the complete structure of the Photos Library from scratch.

I have also encountered merged people albums, usually after a system upgrade, when Photos scanned all photos again for faces, because the face detection has been improved.

To split the merged people again I renamed all faces in the merged album, for both merged people with new nicknames, that have not yet been used with Photos. Using one of the previously used names might cause the albums to be merged again, instantly. See: How to Correct Merged People Albums - Apple Community

SupposeI have a bunch of pictures of Cary Grant that I've labeled "Cary Grant," some that I've labeled manually and some that Photos recognized, then Cary and both kinds of pictures will show up in an album in the People folder, of course. If I change "Cary Grant" to "Cary" (because we're now on a 1st name basis) then all of the pictures' names, both manual and recognized, will change their names to "Cary." So it's no surprise that, in your case, when some changed, they all changed.

It sounds to me like somehow your wife and sister were merged in the People album. For instance, I may have pictures of "Clark Gable" and also some pictures that I manually named "Clark," and they show up as two different people. If I drag Clark over Clark Gable, then Photos, after checking, will merge the two under one name.

The thing is, if I drag Cary Grant over Clark Gable, then they will all be called Clark Gable even if they look different. I will have just trained Photos to recognize both guys as Clark Gable, and new pictures of Cary Grant will be labeled Clark Gable.

That's the only thing I can think of that would cause what you see, and it would do exactly that. You do get a warning when a merge starts, but it's easy to just say OK without realizing it.

Unfortunately, to un-train Photos, you have to cancel everything about Clark and Cary and start over, just like the Apple Support said. I hope they gave you steps. It may matter what you do first.

Hopefully, after you do enough to train Photos, it will do most of the rest for you.