My opinion to best action I would take, picture like this, and before I say this, I know you may think, "well, I am here to save my marriage", there's ups and downs and is in my opinion best for you and your children along in accordance to your wife and you to be amicable.
I would recommend you seek a lawyer for advise, reason said, as you stated above, you have sold the house, she spent the money she would claim D and half of your share, and you will be left with less and is unfair for you.
I believe when consulting a lawyer, suggest whether maybe have some legal document that this can be a bond for the house or all things, meaning that once sold, she cannot claim this if D takes place or alternative suggest to the solicitor and have your wife laid with the options on the table whether if there is no legal doc which I believe there is but in agreement with your wife signing and in case she does not take it negative "MIL" as per your comment, deciding to sell the house, then possibly a divorce would cover the assets and protect yourself.
Again, you need sometimes to make decisions not for anybody's comfort but what is best for you and your family. In this case, as you said, your wife is no longer who you knew in the past, and also don't forget influence from the outside who can change her state of mind.
Maybe somebody may have a different approach in the forum, but this is just my opinion.
