Don't hang about on here any more, Tiger, get down to the CAB this morning. It's pretty clear now that your chances of living rent free in someone else's house are zilch. I've spent money on rented premises to improve them, you don't get anything back in the end - your rent was zero but it's the same situation.
You've been damned lucky to live rent and mortgage free for 15 years - you are now in a completely different situation. Unless you can magic £13,000 out of nowhere to pay the anticipated legal fees to fight your ex-inlaws (and if you can, what effect will owing that sort of money have on you and your kids' lives for the next few years) then stop now - just go and find somewhere else to live.
You can't be told more clearly than that, surely - you are just grasping at straws now, it's such a flimsy story that it might not even get before a judge.