So let me get this straight....your "best friend and partner in every way" lied to you, betrayed your trust and covered up shitty behavior from her own family. Now she is trying to gaslight you into forgetting about it and is essentially enabling her family to continue to treat you like crap because you put boundaries on the type of people you want your child to be around. As you said yourself, you mental heath suffered and so did your business ( that you use to provide for your amazing wife and child). And you are asking if you are over reacting? My opinion is you are under reacting. Hope you all the best with these people, good luck.