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Ok, here's what happened:
I am Protestant and England. Wife is France and Spain.
At the end of round 2, Ottoman was inactive, HRE was Major ally of Spain.
During War Declarations of Round 3's Diplomacy segment, Wife France declared war on the Ottomans. I remove France's chip from the track. Spain (wife's other faction) wins the check.
So, now I have no idea how to let this play out. The rules state that controlled powers by same player cannot declare war on each other, and that activated major powers have the same restrictions. However, the war declaration came before the status was determined. So, Spain could just use the Ottoman impulses to move all the ships away and let France go at it (not that there was much time with me visciously going after France to keep their attention off the Huguenots).
How is it resolved?
Indeed, very problematic. Handily, Ed ruled on this already, in this thread. (Redux: Spain is also not eligible to be the winning power for this check.)