"Brooke and Charlie still love each other, but they are very different," says the source.
The couple, who have twin sons together, "will make their best effort at counseling," the source adds, "[but] divorce is definitely a possibility."
For now, Sheen, 44, and Mueller, 32, are giving their relationship a chance. "For the good of the children they definitely want to see if counseling will help before anything further is decided," says the source.
As for the couple's fight, which led to the actor's arrest for second-degree assault, menacing and criminal mischief in Aspen, Colo., the source says, "Brooke asked Charlie for a separation and divorce. This caused his temper to flare resulting in the incident that landed him in jail."
According to a police report, Sheen himself told Aspen police officer Rick Magnuson that he and Mueller had been having marital problems recently and that their argument grew heated after she threatened him with divorce.
The Two and a Half Men star denied threatening Mueller with a knife, strangling her or pushing her, according to the report. Sheen admitted to snapping two of Mueller's eyeglasses in front of her and told the officer that the two of them slapped each other's arms during the argument.
In a 911 call released by Aspen Police on Monday, Mueller told the dispatcher, "My husband had me with a knife. I was scared for my life and he threatened me."
Currently, Sheen is back in Los Angeles, while Mueller remains in Aspen. The source tells PEOPLE that they need some time apart to sort out their thoughts and decide what is best for them and their children.
On Monday, Mueller was photographed out and about in Aspen. She and some friends went out that night and enjoyed a low-key time at a club in Aspen. "They just hung out and listened to music and chilled," says the source.
With reporting by CYNTHIA WANG