1. If the division of property is done on mutual consent then go for partition deed and register it.
2. Well, if her father married that lady with the child then nothing could be done. Moreover since her father is also dead then no case of adultery can also be filed. So she better keep the child out of this and divide the property keeping his second wife in mind.
3. Only her father's property is liable for inheritance to his second wife. The mother's property is liable to devolved upon your wife. However since her mother died before her father so her father and your wife inherited your mother in law's property in equal share.
So the second wife will get half share in your father in law's property which include the half share your father in law inherited from his first wife.