Well that deal turned into multiple offers and she did not get her contract accepted.

And if your spouse is involved in your business (and you can prove if it if asked,) then her expenses are also deductible.

A common way of dealing with minor encroachments is to sell the strip of land that is involved to the neighbor.

What do you recommend for someone with multiple rentals and a net worth of 300k+

It looks like a good opportunity to purchase multiples of these.

It sure it's worth involving a lawyer... but that's up to you and your business acumen.

She basically has me wrapped around her little finger except when money is involved.

This doesn't even begin to account for all the time spent and the high levels of stress that are inevitable when you're involved in litigation.I always tell my clients I don't want to turn away money, but there are times when it's best to just take a small loss and move on to the next deal. 

Thinking it's only fair for the work involved (especially if managing rehab)

 I think that the previous owner wasn't that involved.