Melo's age and declining ability combined with being stuck where we have been the last 4 years is why you trade him.
Even if we didn't have KP, I'd say trade him.
Heck, having KP makes me think twice about dealing Melo, because KP and Melo have shown good chemistry especially last season when Melo was playing the point forward role.
I just don't see the benefit in having Melo lead 30-35 win teams every season until his contract ends. In trading Melo we would likely seal ourselves as a team that will draft in the top 6 of 2017 draft. We would likely get one or two longterm assets. KP is one of those assets. He is not the reason you trade Melo or expect to hand him the team.
I wish things were different, but I see little solution. Knicks tried getting some veteran players to appease Melo. Hell we brought Chicago to him, the team he wanted to sign with in 2014. It's just not working out. The right move is to trade Melo. Now will Melo waive his NTC? Will we get a decent enough deal to make a trade? I don't know. If no, then we're just stuck where we are until Melo's deal expires or KP blows up into a superstar (which may or may not happen).