Partaking Of Food That Was Purchased With Haraam Income

You are correct in claiming that the income of your husband’s grandmother is not of a Halal nature and based on that, it will not be permissible to partake of any food that is bought using that income.

However, in order to avoid a family feud, you, together with other family members could volunteer to prepare the food and take it to her house and then state that you are doing so to lighten her burden. Together with that, make Du`aa that she can opt for a different source of income and also try to have a learned person in whom she has faith speak to her regarding it.