There has to be another way! You must find someone else to help with the kids. This is not typical MIL issues. Sounds like she's taken over your life.
Is your husband ill. Since he's a stay-at-home dad he should be able to do most of the care taking? And he needs to learn how to set boundaries with his mother. You mentioned a
counselor. I agree your MIL sounds like all the things you're describing. She is not a good influence for your marriage and your children. IF your husband isn't able to actually enforce boundaries perhaps he could agree to back you up when you enforce them.
The only explanation I would understand for your husband being so attached to his mother and unable to provide 24/7 assistance as your partner and the children's father, as well as not working is that he has serious emotional issues. In some ways he reminds me of my cousin, whom I married. He is schizophrenic. THe big difference is that he's worked at the Post Office for 30 years. The similarities are that he is unable to understand how other's feel because he doesn't understand his own emotions. He was also attached to his mother. Fortunately I could work around that most of the time. She had some dementia and did not want to take care of anyone which is good. She couldn't take care of herself.
Unfortunately my husband could not set boundaries and would not back me up when I set boundaries. The psychiatrist said that this is one of the difficulties of schizophrenea. We had 3 years of counseling before I could accept that this life was not working for any of us. We separated and then divorced. We are still friends. He is family.
Do you qualify for state or county help? If your income is less than a certain amount they will pay for child care. I would also look into getting your husband social security. If he is medically unable to work as certified by a doctor. The inability could be either emotional or physical or a combination of both. The process takes a long time, I'm told, and that frequently people are denied the first time but they are accepted when they reapply.
Does your daycare for which you have a scholarship not take care of babies? If it does could you place her in day care. I can understand that you would hesitate to do this because of health issues. However, what is happening now with your mil is also creating health issues which may not show up in your children until they're older. But I suspect you're seeing their reaction to tension and disrespect right now. Also it sounds like your mil is not taking appropriate care of the baby. She could get better care in day care. Perhaps you could find in home care for her thru a church or even looking on the Internet. In home care, although expensive, is less expensive than a day care center. And the day care person is usually more knowledgeable and has the time to learn what your baby needs.
My daughter is no longer elibile for child care assistance because she earns $32,000/year. She also gets child support of $250/month. She is a single mother with two children both of whom are in day care. Her daughter is 8 and attends a YMCA before and after school and summer program which costs $325/month year around. My grandson's day care costs $460/month. She is making car payments and paying off educational loans. She lives in an affordable housing apartment for which the rent is much less than market price.
Are you renting or buying your home. If you're renting I would seriously consider moving as far away from your mil as you can and still get to work in a reasonable amount of time. I would also find out if you're eligible for affordable housing. Also, if you're buying your home, consider selling. Perhaps a talk with someone knowledgeable of finance management could help you know if the possibility of any of these is feasible on you salary.
Does your relationship with your husband provide you with a sense of support? Is he a partner or another child to take care of? Are you happy with the marriage except for your mil interference? Would your relationship with each other be good if you didn't have mil interference? Is he willing to work on something to make life better for you and the kids? Does he understand the stress that you're under and the anger that is building inside of you? Does he provide support in issues other than those with his mother? Does he know that he is not the babysitter and therefore is on duty 24/7? There can be no dropping out when you get home. Does he do housework, laundry, or work on fixing up the house? Do you feel understood and supported by him?
You mentioned a couselor. Do you see him regularly and is he able to help iron out some of this stress? If he's addressing other issues perhaps you could try working with a marriage counselor.
If I were you and saw no relief in site I would make a plan for leaving. Women's shelters have counselors who can help you do that. A counselor experienced with these issues can also help you.
I really feel for you! You are backed into a corner that must feel impossible to get out of. YOur own mental health is going downhill. Your children are being negatively affected. And it seems to me that your mil is not a safe person with whom to leave your baby. I don't understand why your mil is taking care of your baby since your husband is not working and is able to do so. Is your mil involved because she is using her role of mother to appeal to his role as child? Many couples of small children do not go out if it requires getting a babysitter.
Perhaps, once you get into counseling and/or have outside support, you tell your husband that you cannot live this way any longer. And that you will leave if he cannot keep his mother out of your lives. Talk with each other about ways that he could do that, leaving the final decision of what HE is going to do. In the meantime check out places to which you could move. I would also check into the possiblity of being on my own as a single mother. I know that you can get financial assistance, if you're unemployed, as long as you have a child under the age of 2 and especially if that child has special medical issues. I've seen that work for my daughter. She was able to be on her own in a year or so. She can remain in the affordable housing apartment at an affordable price as long as she wants to do so. I think her rent for a 3 bedroom unit is less than $500. The building was new when she moved into it 8 years ago.
I hope that I've given you some ideas of ways that you change this intolerable situation. I would almost guarentee that if you are not able to get your mil out of your lives your situation will continue to worsen to the point you won't have the ability to provide a stable home for your children. Anger will get worse and will flare up causing emotional and/or physical damage that cannot be fixed. Your children are already experiencing trauma as a result of the squabbling and fighting and your anger at having to not say anything. Children pick up on tension and become stressed themselves which created even more stress for the parents.
Making the major changes and setting boundaries for you and your chidren is extremely difficult in this sort of situation. If you don't do this now life can only get worse. I'm pulling for you and your children.