(1 1/2 story) Wall help

[kisiephish]

I'm having a wall problem in a 1 1/2 story design. (See pics below) I need to know how to extend the wall on the upstairs only. I can build a wall to close that exterior gap and square off the upstairs, but the wall extends down to the first floor. I know if I put a ceiling over the other room that keeps it from extending but I'm looking to keep it 'open below'. Daydreamer, I've been reading your posts and you can not even begin to understand how much you have helped me so far! Hopefully you know what to do with this one!!