I was/am in a similar situation with my wife and step daughters dad, but not to that extreme. I didn't read all 5 pages, but I did read the OP. I have spent more then I would like to admit on lawyers these past few years, but documents EVERYTHING with precision. Date, time, situation, outcome, etc. Obviously the best thing to do, is what has minimal impact on the kids. Otherwise, I find it best to hit them where it hurts if they're going to be jackasses. Sounds like in this case, he values money whether its a $1 or $25. Sink him in court costs. keep a balance sheet of what he owes you guys, when he tells you that you owe x amount for whatever he bought, tell him you will deduct it from his costs. I can be very petty on the principal when it comes to stuff similar to this.
option 2: I know a guy...
So about that option 2...hahaha
Court is the way this is going to go.