If indeed the translation is ambiguous, how does one know when possession is in play vs location such as the example above? Other context like conversation or what is being talked about, gramatically...? Is one process more preferred than the other and in general one can be assumed over the other?
No, it would not.
tá is the verb in the sentence. To make a question of a verb, you put the interrogative an in front of it, and, in the case of the irregular verb bí, the present tense dependent form, used after verbal particles, is fuil. The Interrogative verbal particle an eclipses where possible, so the interrogative form of
Tá an dlíodóir ag an uisce - "The lawyer is at the water"
An bhfuil an dlíodóir ag an uisce? - "Is the lawyer at the water?"
An bhfilleann sibh? - https://forum.duolingo.com/comment/4332724
An gcuimhníonn tú? - https://forum.duolingo.com/comment/13322915
An gceapann tú? - https://forum.duolingo.com/comment/8739681
An dtuigeann tú? - https://forum.duolingo.com/comment/5031655
An dtéann tú? - https://forum.duolingo.com/comment/4749317
An itheann sí feoil? - https://forum.duolingo.com/comment/15108616
An snámhann tú? - https://forum.duolingo.com/comment/4374001