Hi Bob,
As the owner of a fear-reactive Spaniel myself, I can appreciate how hard this is for you (I have a blog on my spaniel, Jake, who is dealing with some aggression related issues:https://snappyspaniel.wordpress.com/author/snappyspaniel/)
As we've known about Jake's bite history from an early age, it makes it "easier" for us to control situations - especially around children - but I was brought up with a Collie who never showed any signs of aggression and tbh I always had the expectation that no dog should ever bite or snap and if they did they were "vicious". After raising Jake, I know that this is simply not the case, and dogs are much more complex than teenage me (or my parents) had ever really considered. Jake is a lovely and affectionate dog, much like your own sounds, who has a bit of a short-fuse and we have learned appropriate management techniques for dealing with him (and are bite free for over 6 months!) but that does not mean we are (or will ever be) completely comfortable when he is around others - particually children.
It doesn't sound like your dog is anywhere near the level Jake was last year, and this was an isolated instance most likely caused by stress of an unfamiliar location / people, the child with make up on ... and probably something a bit more than a gentle stroke that startled your dog? I genuinely believe that lots of dogs would react in the same way under similar circumstances - but obviously it must be awful for you for this to have happened, especially as a child was involved.
It's very hard to advise on something like this, as it sounds like you are almost being forced into a "its me or the dog" type situation. Unfortunately, knowing how people react when I tell people about Jake who don't really understand dogs, I imagine your gf/in-laws attitude is pretty unshakable and I do wonder if you will ever be able to convince your gf / in-laws that your dog is fine and this is an isolated incident.
I really hope the injuries sustained weren't too serious - and that the child is not affected physically or emotionally by the incident - things will have to change in terms of management around children now you know your dog is capable of biting, so I think the decision you have to make is whether you are willing to live for the next 6-7 years with a dog who could potentially bite. From experience, it can be stressful, especially when others do not respect the way you do things (but it sounds like your own kids do which is great). I've found that Jake is actually very predictable when he snaps / bites - it's people that are unpredictable and they are much harder to control! Kids even more so. The danger is you may find that you isolate yourself from people, particularly if you are not able to fully control a situation (such as in this case) which can put massive strains on your own mental health - as well as existing relationships. I really do wish you luck going forward with this, I can definitely relate and it's not nice having a dog who is so sweet and gentle in your eyes, but perceived as a "nasty dog" by others - but if you want to keep your dog, you will have to deal with some degree of this for sure considering what has happened.
That said, I really hope you and your gf and family work this out and you do not have to give up the dog. It will all come down to whether you can reassure her (and yourself) that by putting into effect appropriate management strategies (such as no more stroking the dog on the sofa) this will be very unlikely to happen again. I am hoping this has a happy resolution for you all