All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.
Forbidden money is of two kinds:
1) Money forbidden in itself, like stolen money: it is absolutely not permissible to deal with a person who has this kind of money, except if one takes this money to give it back to its owner.
2) Forbidden money due to the way it was earned, like a person working in a bar and the like; the scholars differed in opinion about this issue, some are of the view that it is permissible to deal with a person who earned this money whereas others are of the opinion that it is not permissible to deal with him. Abdur-Razzaaq As-San'aani reported that Ibn Mas'ood was asked by a man that his neighbour consumes Riba (interest and/or usury) and he often invites him, then Ibn Mas'ood told him: “Benefit from it, and the sin is on its earner.”
Imaam Ahmad stated that this narration is authentic, as stated by Ibn Rajab from the Hanbali School.
Shaykh Ibn 'Uthaymeen's stated: “The rule is that the money which is forbidden due to the way it was earned is only forbidden for the person who earned it and not for the person who takes this money in a permissible way, and the Prophet accepted gifts from the Jews…despite them dealing with Riba.”
Therefore, according to this opinion, it is permissible for you to accept the gifts from your parents in-law, while endeavouring to advise your father in-law, as Allaah may guide him thanks to you.
Nonetheless, according to the second opinion, which is the view of many scholars and it is safer to act upon it, if your father in-law has no income other than his forbidden job, then it is not permissible for you to accept his gifts unless you are in dire necessity for it. If you are in dire necessity, then it is permissible for you to accept it because you become one of the legitimate recipients who are allowed to take this money whenever its earner has repented and wants to dispose of it. However, since you took these gifts while you are not one of its legitimate recipients and it is not possible to give it back to him, then the solution is to give its value for the poor and destitute with the intention of getting rid of forbidden money.