We (the kids) did something similar for my parents a few years ago. They had thousands of slide photos! We thought about sending them out - you do get the pictures back, but the cost was really quite a lot to have someone else do it. We decided instead to buy a high quality scanner and do the scanning. It had automatic settings for this purpose and made the process simple (autoadjustment of colors, brightness, etc). It was still time-consuming to put them on the scanner one at a time, but simple. In our case, one of my siblings volunteered to do the scanning, and the rest of us chipped in to buy the scanner - not really an option for you, and I don't know if you have time to do all the scanning. But, doing the scanning yourself does get you around the copyright issue with school photos and saves you tons of $ if you think you can find the time.
I have also recently tackled projects that involved sorting through digital pictures. I find that it's easiest if you set small goals, and have the digital pics on the laptop all the time (do you have a laptop?). That way, I could work in small batches in those empty spaces of time in life. Sitting waiting for a kid at an activity? sort a few pictures. DH has a sports game on the TV that I'm only half interested in? sit in front of the TV, listen for exciting plays (as marked by DH cheering or cursing at the TV), and sort some pictures. Car trip and someone else is driving? sort some pictures.
Have a folder on the laptop for each kid and drag each picture file into the kid's folder. If it has 2 kids in the pic, make a copy of the file so that you now have 2 copies of the picture, and drag each file into the proper folder. You will end up with many duplicates this way, but it will be easier to make the DVDs and albums in your next step.
When you upload to a site to make the albums, you can have the site auto-sort the pictures by the date and time it was taken. You'll have to manually put in the scanned photos since they won't have an automatic time and date stamp.
For your divorced child, I would put only pics of her and family from the wedding in her album and leave out any pics that contain her ex. You can keep all those pics in your master picture file. You might leave them in the DVD of digital photos you give her. But I would leave him out of her printed album.
It sounds like a big job, but it will also be a fun walk down memory lane when you look at all those pictures.
ETA: We were not emotionally able to throw away the slides after we scanned them. So they are back in storage in the basement. I'm sure they will never be looked at again. Who even owns a slide projector? But we couldn't bring ourselves to pitch them so in the basement they sit LOL.
ETAA: I also urge you to think carefully about what medium you want to use to save the pictures. Neither my or my husband's current computers have a disk drive at all so I wouldn't be able to open a DVD. We used large (in terms of GB) flashdrives for our picture project. That is really your last step though, so you have lots of time to decide where to save them for the kids.