Yes, it is probably working as designed - but I disagree with the design for two reasons: (i) it doesn't seem realistic for role-play purposes; (ii) it isn't consistent with the way bastards are handled in the rest of the game.
Role-play: Your (male) character and the impregnated woman are both Satanists, and are probably trying to hide this fact from the world. If I was in that situation, I would not go around proclaiming publicly that this child's father is Satan himself. No, I'd keep quiet in public and pretend it was our natural-born child - especially if the woman was my wife/concubine. In private, our fellow Satanists would know the truth, and that's all that matters.
Consistency: When your wife has a child by another man (and you find out), you get to choose either to denounce the child or to pretend it's yours. This situation is very similar IMO, so you should IMO get the same choice. (Of course, the child's (hidden) real father would be "unknown" (ie. Satan) no matter what you chose.)