*adding this: Sometimes, you just have to tell the person point blank: "Do you realize you cause so much misery to EVERYONE? Do you LIKE being this way? Do you LIKE being the person that everyone calls a trouble-maker? Do you like that people avoid you because of your personality and mean ways? Do you LIKE knowing that you are HARMING other people and their happiness?" Sometimes, a person has to hear this. Then after telling them... stop. Don't get into a 'discussion' about it or argue about it. Just stop, walk away, then let them deal with it and look at themselves.
*In my situation...no matter what I did to remove myself from the situation & no matter what I did to 'censor' myself, it continued. ie: because my sister, would then create trouble for me by using other people...manipulation at it's highest! So sometimes, you cannot just handle a person by ignoring them or giving them generic exchanges.....you really have to get them out of your life, even if its family. It was either my sanity or nothing. Some people do NOT leave you alone no matter what you do. THIS is what I learned. Fortunately, my sis got counseling/therapy for herself. As she even had this problem with everyone in the world. Fortunately, she is much better now.
Does this person have a family/husband/children/friends of her own?
If not, she could just be resentful, jealous, and trying to 'control' others because she is so out of whack.
Never mind her. BUT... you have to protect your own well being, your children and your Hubby.
My sister, when younger, used to be this way. She caused so much grief to everyone, my parents, me, my Hubby, and our children. She acted as though she was the authority on everything, and yes, did not keep personal things private. She trampled on everyone's boundaries.
My friend, also 'had' a Mother-in-law like this. She caused GREAT misery for everyone, including her own Husband.
The point is... you cannot 'control' her. You cannot 'change' her. You cannot make any sense to her, because they themselves will not 'respect' anything or anyone. All they do is create drama and trouble for everyone.
In my case with my sister... well, we cut her out of our lives. At one point. It was that bad. At every drama or trouble she tried to make, we just shut-her out and shut-her down. We just did not respond to her. Eventually, we learned she sought counseling on her own, because SHE was so miserable and unhappy... and FINALLY realized that she had no right, controlling the entire family and making everyone her slave to misery. So now today... we all get along. She has completely changed. But.. I still keep an eagle eye on her and trust my instincts about it.
In the case of my friend.. well they 'disowned' this Mother-in-law. And, the trouble still continues. But, they have nothing to do with her. So she makes trouble to everyone else. She is just so toxic. There was no other way around it for my friend and her husband and children. She was DAMAGING even her children. They are just so much happier now, and their lives are now 'normal' again. They feel they did the right thing. Not according to what anyone else told them to do. It was 'right' for their family and well-being. This in-law is just so so mean.
In your case... well, some people won't change. Some will even back up this person, even though they cause trouble. So, you and Hubby have to decide what is 'healthiest' for you and your children. Or, you let someone like this make you miserable and cause dysfunctional vicious cycles to continue.
I know it's not easy... but it reaches a point where you and your family's well being is at stake. And you have to keep this foremost in your mind. People like this can severely handi-cap other people and their lives. It's just no good.
So, be a hostage to her toxic ways, or not.
You AND your Husband can try and sit her down and talk to her. But, being the way people like this are.....she will turn it into another drama...and digress and rant on about other things, dragging everything into it and the kitchen sink. So, I don't know if it will be successful. But you can try that route. The point being, you AND Hubby have to lay down the rules. Point blank. Telling her her behavior is simply not acceptable, anymore... OR, there will be consequences...such as: she has to see a counselor, you & your family will not be a part of her life.... she will not be allowed in your door, do not call you, if she wants to be a part of your lives then she has to comply with your 'rules' etc. But, she has to also recognize that she has a problem and causes heartache and trouble to everyone.
All the best,