I grew up with GSD's and I saw territorial fighting if one of them got to a wandering dog, however, never any aggression towards people even during the times fights had to be broken up. The fact that you have children in the house and your wife was turned on, well I'm in agreement with Wes - as hard as it is I would be looking for a strictly controlled, no children, no other dogs environment for that shepherd. I cannot imagine your wife wants to have to care for a dog that she may no longer be able to trust and may now be afraid of.
I'm so sorry for your wife, what an awful experience to go through. I hope her beloved dog makes it through the attack and back to full health.