Sharing iPhoto Library with Different Users on Same Mac

Surely what I'm trying to do is not that unusual!!?? I'm a new Apple User coming from the 'dark' PC side and was hoping Apple would be better.
Our family has a single Mac running Mavericks. My wife, children and I have our own logins but  we'd like to use iPhoto to store our photos and share the same library. Has to be common......right?
I'm told if we try to share a photo library on the Mac it will cause problems and therefore two choices are:
1. Move the iPhoto library to an external drive or
2. Move the iPhoto library to a disk image.
I'm not sure about this disk image option but luckily(I thought) have both a 2TB Time Capsule and 3 TB WD MyBook Live Drive. I don't really use the MyBook Live and simply use 'Time Machine' to backup the Mac to the Time Capsule.
I thought the easiest way to resolve the iPhoto library problem was simply to put the library on the MyBook Live drive and then I thought I could simply get 'Time Machine' to backup the MyBook Live drive as well as the Mac. From what I can see, 'Time Machine' won't backup external drives.
Given my configuration and hardware can someone PLEASE suggest a good option. I'd like to keep it as simple as possible. :-)
Surely if Apple would simply allow the iPhoto library to be shared but only accessed by one User at a time it would make it dead simple.
Your earliest possible reply would be appreciated.
Thank you!!

Is that MyBook Live a NAS?
iPhoto needs to have the Library sitting on disk formatted Mac OS Extended (Journaled). Users with the Library sitting on disks otherwise formatted regularly report issues including, but not limited to, importing, exporting, saving edits and sharing the photos.
See this article
http://support.apple.com/kb/TS5168
for more. Note also the comment:
“Additionally, storing the iPhoto library on a network rather than locally on your computer can also lead to poor performance or data loss.”

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