Complaint against neighbour

I have a lady in my neighborhood. Actually she is wife of my Cousin. It seems she had some genetically inherited psychological problem since childhood as per some sources. She lacks common sense but have high manipulating power of words. she is exaggerating small issue. Almost every day she has altercation with her husband at every minor issue. This had very bad impact on the mental health of their children also who have now behavioral problems. 1. Her children are frequently visiting our home and want to stay and play with the toys of our own children. we allow them for some time but they want to stay for longer periods which we don't want all because that impacts the study of our children and some times we need privacy. some times we forcefully make them out of our home. once they are out of our home they start crying and telling their mother they were beaten, which is actually not true. with out verifying it, their mother start yelling and cursing us and our children very loudly for hours. when we are getting irritated or feel ashamed, we feel very angry and tell her to be quite. she starts beating herself and crying loudly that she has been beaten or cursed by us. and we don't find a way out. 2. Every time she had fight with her husband and in laws. she is talking so loudly and using such a bad and foul language that we feel ashamed at home. Now when we want to make her to stop or talk softly. she blame us that we are in her husbands gang and we don't want to her to be there. Every time she is warning us that she will sue us. Please guide me how to deal with this problem?