Tell your son that he is not responsible for his mother's financial choices, even if she thinks he is. Tell him that he should think about where he wants to live and where he thinks he would be the happiest, and that you'll support his decision regardless of what it is.

Tell your wife, that if she isn't careful and doesn't provide a better living situation for her children, she'll lose them and the child support that comes with them.

IMO, you shouldn't care one bit about her financial situation unless it is directly tied to yours. SHE made bad financial decisions (what are they going to do when they turn 18?) you shouldn't have to worry about that, especially if the kids would prefer to live with you and you can support them with it.

just my 2 cents.