Switch Box Dilemma

[AnHonestOpinion]

Good afternoon folks. - we have a spare bedroom that has an overhead fan with a light.  Both fan and light are on one wall switch and pull chains on the fixture itself.  We are in the process of updating the bedroom so I wanted to replace the one wall switch with a toggle switch for the light and a 3 position fan switch.   I removed the existing switch and box and discovered that there is less than 4" between studs in this particular situation - in other words I am not going to get a 2 gang box in there.

Things I've considered
1.  Turn the 2 gang box sideways so the standard toggle switch operated horizontally - still not enough room for the box
2.  somehow carve a 1/4" pocket in each stud - not sure the old box flip wings would still operate.  I could probably screw the box to the studs.  The whole things sounds messy.
3.  Use a single gang box in the existing position for the light switch  and add a second single gang box 4" or so up from that box for the fan switch.  I drew out the wiring and it would seem to work.  There would be a 3 wire cable between the two boxes, a 2 wire cable as the source into the first box and a 3 wire cable from the second box to the fixture.  In the first box I would jumper the black source to the red 3 wire between boxes and also to the light switch.   The second box would act as a pass through for the two black wires from each of the 3 wire cables.

Am I nuts or is option three reasonable?  Any other options?  I want to minimize dry wall work

Thanks
Rick

Here is a less sophisticated option. Very straight forward.