I've been dwelling on this one, because I find it completely horrifying. First of all, it's your brother who shpuld be considering a divorce. What kind of person considers this to be acceptable behaviour? Secondly, your brother and step-sister have let their kids appallingly. She is not a fit mother, and either he is blind to that or just as unfit a parent as she is.
The kids need to be removed from her before they move from being little hellspawn, to full blown criminals. Now, I have no idea what "Sal" is like, so I can't pass judgement on him personally, but IMO the best thing he can do for his kids is remove them from the influence of their mother.
What the kid done isn't right, and you should be thanking your wife, not threatening to leave her. They (and quite possibly you) needed this wake up call, but it shouldn't have cost the life of a puppy to get it.