iTunes Media Sharing

I want to share a single source of music files (stored on a HDD attached to AEBS) with my wife. She has her own MBP and Apple ID. So we are talking 2 MBP's and 2 Apple ID's. I have turned Sharing on in my library but when she shares my library, she cannot use the playlists that she has in her iTunes library.

So how can we set up her iTunes library and my iTunes library to access the same network stored music files? My understanding is that just pointing each personal library to the media folder is not a good way to do it. Is that correct?