"I think they were always putting on a show," says Melinda Phillips, who recalls seeing Chris and Shanann Watts "clearly having an argument" in their driveway

Summer Before Triple Murder, Watts Couple Had 'Full-Blown Fight' — Then Hugged When They Were Seen

Chris Watts and his wife, Shanann Watts, seemed to have a comfortable life in Frederick, Colorado, a northern suburb of Denver.

They lived in a 4,177-square-foot home valued at $484,000, on a quiet, well-manicured street in a new neighborhood.

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The couple, who married in 2012 and relocated from North Carolina, were often seen playing outside with their two young daughters, 4-year-old Bella and 3-year-old Celeste, and they were expecting a third child, a boy named Nico.

Most neighbors say they had no indication that anything was amiss — though, in light of the violence three weeks ago, no one is sure what to believe about the family at 2825 Saratoga Trail.

“I don’t know what life was like in that home, but there were no red flags at all that the girls were scared of their parents,” a neighbor tells PEOPLE in this week’s issue, which traces the investigation into the mid-August murders of Shanann, then 15 weeks pregnant, and her girls, allegedly at Chris’ hands.

While Chris, 33, has allegedly admitted killing 34-year-old Shanann, according to police documents reviewed by PEOPLE, he claimed not to be responsible for the other deaths.

Instead, he allegedly said, he was driven into a “rage” after watching Shanann strangle Celeste when he announced that he wanted to split up. He said he also saw Bella, “blue” and apparently lifeless, on her bed.

According to the neighbor, Bella and Celeste “really didn’t seem to be the least bit scared” of their dad. “On the contrary, [they] would greet him with hugs and kisses. And he’d kneel down happily and give them kisses and then kiss Shanann. It was exactly what you expect from a happy family.”

But at least one observer noticed something amiss in the couple’s relationship.

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Image zoom Shanann Watts (center) and her daughters Shanann Watts /Facebook

“I think they were always putting on a show,” says Melinda Phillips, who recalls seeing Chris and Shanann “clearly having an argument” in their driveway one day earlier this summer.

“Their body language was really angry, and they were just fighting back and forth,” Phillips, 34, says. “He was gesturing his hands and they were shaking their heads, and it was definitely an argument.”

“I didn’t really think much of it, because Lord knows that I’ve had the same arguments with my husband,” she continues. “They caught my eye and suddenly, everything changed. They stopped being so angry, and they started talking a lot more calmly. He even gave her a hug. Mind you, this was in the space of 30 seconds to a minute.”

“From a full-blown fight to hugs in less than a minute, it was incredible,” she says.

The savagery and deception authorities described in the murder case — which began when Shanann and her daughters appeared to vanish from home on Aug. 13 — have left loved ones and locals reeling.

The bodies of Shanann, Bella and Celeste were recovered not long after Chris was arrested on Aug. 15 and accused of their murders. Their remains had been concealed on property belonging to his former employer. (He was fired the same day he was taken into custody.)

Motive has yet to be confirmed, drawing greater scrutiny to Chris’ suspected infidelities.

Among other alleged revelations, according to investigators, was the confirmation that Chris was cheating on his wife with a co-worker at the time of the three slayings. A source close the investigation told PEOPLE this week that Chris had relationships with both men and women outside of his marriage.

Image zoom From left: Chris and Shanann Watts Shanann Watts /Facebook

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While one friend told PEOPLE that Chris appeared to be a selfless father, a friend of Shanann’s told ABC News that he had grown distant before his wife was killed: “He wasn’t touching or hugging or doing stuff like that.”

A family friend echoed that, previously telling PEOPLE that Chris and Shanann “were having marital problems.”

Chris has been charged with first-degree murder, among other crimes, in the deaths of his wife and daughters. He has not entered a plea.

His attorney is barred from discussing the case, according to a statement from the state’s public defender’s office, which represents him.