Scentia. I am so sorry. This is a terrible situation for you to be in. I do agree with everyone who says you are right not to get involved but to be there for your daughter so she has a safe place and person to whom to turn.
Unfortunately we do not know exactly what goes on in a home and a relationship. I hid my extreme distress from my parents at the way my husband treated me for many years. I feel inclined to say that your daughter will get nowhere while she feels she is "having to defend herself all the time".
Criticism is the first of John Gottman’s famous 'Four Horsemen of the Apocalypse', which predict divorce with more than 90% accuracy.
My advice to your daughter, from experience and from giving Counselling would be to stop being on the defensive. Realise he is always criticising, realise that he gets some kind of 'kick' out of putting her down. If possible she would benefit from not feeling like the victim and simply by replying calmly, "I'm sorry that's your view. You may be right, you may be wrong." and do not say anything else. Just repeat those words if necessary.
You may need to try and help your daughter to feel strong and that she is not the helpless person she feels she is at the moment. He has worn her down with constant criticism. Your words "she seems like a different person than the strong young woman we raised." triggered alarm bells in me. You have seen the change in her. She has lost self-esteem and has been crushed. Her extreme change is not due to mere disagreements and criticisms, he is attacking her on a very deep level, undermining her very self-belief, her inner strength. This happens when a person is systematically bullied in a certain way, repeatedly not allowed to be themselves, derided, denounced, humiliated, made to feel they cannot do anything properly. They try harder and harder to please and all the time it is thrown back in their face, sneeringly and cruelly. All in the privacy of the home. In public he remains "That nice man". I suspect this is the case for your daughter. I am all the more convinced because you feel that regarding the issue that caused her to leave, "it is a row about something so silly". It is always "something so silly" to anyone who does not know what these cruel people are like and the issues they pick on. Trying to explain what it is like being with them is so difficult! You say "Nothing I do is right for him." and people say "Then why does he stay with you/you with him?" but it isn't possible to get away and he stays because he likes tormenting you, it is his favourite hobby, the driving force of his life, to see you squirm, try to explain, try to please him, try to put it right... to see your fear.
It would be wise to get legal advice since he has effectively driven her from her rightful home. It is time for your daughter to learn where she stands and to feel in control of her own life and that of her son. She needs to recognise she has rights and that those rights begin with not being subjected to an atmosphere of constant criticism in her own home.
As her mother, you will be feeling so upset for her and often so helpless, Scentia, but do not under estimate the importance of your quietly solid supportive role at this crucial time in your daughter's life. Just by being there, as calm as you can be, listening, soothing, supporting, strengthening her. Your DH has recognised how critical this man is for a long time. The criticisms will not stop, believe me, he enjoys them, dishing out the put-downs makes him feel powerful. I lived with it for 23 years. It wears you down so much that you have no life left in you, you become a hollow ghost with no comparison to the person you used to be.
I would like your daughter to get objective professional help. It is impossible to try and manage these things yourself, when you are so worn out and distraught you cannot see the wood for the trees. She needs to learn about abuse and understand what is actually going on, not what he says is going on. She would do well to see her GP. There are websites giving advice about critical and controlling men and how to cope. I found a few:
this one has a Christian perspective but is useful for non Christians too: www1.cbn.com/marriage/living-with-a-critical-control-freak
When I typed in "Critical Husband" it did not reflect one who drove his wife to leave the marital home. I think your SiL is more of a Controlling and Critical man, the Coercive type, a nastier person perhaps. Saying he doesn't want to be with her any more but letting her be the one to move out is very selfish. It suggests that he may be controlling and coercive. What are the signs?
Katie Ghosh, chief executive of Women's Aid describes it like this: " (It is) If your partner is constantly chipping away at your self-esteem and rubbishing you." and Professor Evan Stark compares it to being taken hostage: "The victim becomes captive in an unreal world created by the abuser, entrapped in a world of confusion, contradiction and fear." In case it is relevant see www.bbc.co.uk/news/newsbeat-46347957
I am so very sorry about this situation. Do not get involved with any nit-picking details of the arguments and encourage your daughter to let those details drop however niggling and unfair they may be. Just keep suggesting she refuses to argue or discuss with him the details of whatever he is criticising. Try and find that blanket reply and use it over and again in a dull neutral voice, such as "I hear you, maybe that is so, maybe not." Regarding ending the marriage, it needs Solicitors to handle that.
Sorry I have taken up so much space.
I do care very much about this kind of situation. I feel how distressing it is for you. I pray that a good outcome may be found and that in a few months time your daughter is living with her son happily and has returned to the happy, strong person she truly is. With love Elle x