I have 285/70/17 on stock rims. so they are about 11.2" wide. So yes 12.5 might rub.
As far as narrow 35" fitting with torsion lift and blocks in the back, yes it should fit, but the narrow tires will look funny.

 

i am not takling about a norrow tire they will still be 12.50 in am talking about a wheel that dosent stick way out i am wanting to put wheels on it where the tire only sticks out an inch or two past the fender. small enough so that i can cover it withfender flares

 

12.50 should get you where you want to be.