Choosing a spindle encoder

I wasn't suggesting splitting the spindle, but if there is any access to the inside of the head without removing the spindle from the bearings then I think that something might be doable. You could split a gear and assemble it around the spindle shaft.

Some ideas:
This is a setup I did using ATS667: photos.app.goo.gl/Jmc4fy9Uvtqed6Lx7
Running in oil and using an existing gear.

These are some fine pitch target wheels I had laser cut, cost was £50 the pair.
photos.app.goo.gl/HfEbXHtSL9qLVf9a7

Here is an encoder made with a slitting saw and mounted to a drive pulley:
photos.app.goo.gl/gotf1D6iMkMGR9Er5