All perfect praise be to Allah, The Lord of the worlds. I testify that there is none worthy of worship except Allah and that Muhammad is His slave and Messenger.
The hadeeth which you quoted in the question was reported by At-Tirmithi on the authority of Abu Ayyoob Al-Ansaari, may Allah be pleased with him, and Shaykh Al-Albaani classified its chain of narrators as Hasan (good).
It is relevant to separating between a woman and her child when owning them [like when buying them as slaves as was common practice in the past; either one buys both of them or leaves both of them].
As-San'aani said in his book Subul As-Salaam, “This hadeeth has an apparent indication of the prohibition of separating between the mother and her child. Its apparent meaning implies that it generally refers to ownership and other situations, but it is not known that any scholar interpreted it with this general meaning, so it is only understood to refer to separating them in ownership.”
Based on this, the hadeeth does not apply to the situation that you mentioned in the question.
In principle, that woman (your niece) is innocent from assaulting her daughter until the opposite is proven. A rule that scholars of Fiqh abide by is that ‘in principle, a person is innocent (until proven guilty)’. This rule falls under the major Fiqhi rule that states that ‘certainty is not overruled by doubt’.
There are a number of reasons that suggest the innocence of that woman:
- She is the mother of that girl, and the mother is mostly compassionate with her children.
- She mentioned that her children testify that the girl is the one who harmed herself.
- You also mentioned that the Department of Youth and Family Services has investigated the matter and that there is no evidence against the mother.
Your sister should not have hastened in this matter, especially given that you are one family. If there was something going on, it could be discussed within the family.
What we advise you to do now is to use wisdom and seek the help of the rational, wise people in the family to arbitrate the matter and work to reunite your niece with her daughter without any harm to your sister.
Finally, we remind you to call your non-Muslim family to Islam and work on whatever helps to encourage them to embrace Islam, especially in terms of treating them kindly.
Allah knows best.