Hm. If Arcata spiffs the Absorb Elements spell to half the fire damage, would that keep her awake from Sleep? Or mean that the Sleep fails to affect Magdelena?
Also, I may be wrong, but I think only melee attacks can be made nonlethal...
Absorb Elements would still have you both going under. You could use Shield to negate the damage you suffered, and in that case only Arcata would go down: The Magdalena would still be awake. Your call.
As to the Non-Lethal Magic thing, call it a house rule for now. I'd imagine spells like Shatter or Magic Missile can be adjusted to not put major holes in people.
However, the PHB does say it must be a Melee Attack, so I'll say this is just a one time thing if you want to use it.