The basic process to create a new Project or Data Set is to use the Secondary Output of the List of People Report. You find that under Options on the Report Definition Screen. You create a list of People you want to include in the new Project or Data Set, by use of Filters, a Focus Group, or selecting them in the Project Explorer.
I think think the easiest way to do what you have in mind is to use the Focus Group. I would suggest this process:
1. From your wife's Details screen, make her parents non-primary. That will keep her ancestors from getting included in the following steps.
2. Add yourself to an empty Focus Group.
3. Set the Add Others parameters to add Spouses, Add Ancestors for more generations than exist in your data, and Add Descendants for several generations.
4. Make sure you are selected, and click the Add Others button.
5. Click the Select All button, then the Add Others button again. Note the number of "Names in the group" at the top left.
6. Repeat step 5 until the number of names stops increasing.
This process will pick up all ancestors, siblings, descendants of siblings, spouses of the preceding, parents of spouses, etc. that you may have entered.
Once you have created the Focus Group you can then use the List of People report to create the new Project. Then make the backup as you suggest.
One separate issue to think about with your plan. If your brother adds information, getting that returned and merging with your own data has the potential for creating quite a mess. If he adds people you don't have, you can copy them into your data. But if he adds information about people you already have you will be confronted with an issue. If you simply merge his data with yours, you will have hundreds of duplicate people in the resulting project. Merging them and sorting out the new data will be a huge project. There is no simple way to identify the new data, I'm afraid.