Unless the custody paperwork provides for alternative custody arrangements in the event that the father can no longer have physical custody (i.e. that your daughter will receive custody), then she will have to go back before the judge who signed the original custody order and seek a modification, because the father still technically has physical custody. Your daughter only has legal custody, which means she can make decisions regarding her child's medical care and the like, but it's no substitute for physical custody. Under the circumstances, provided that your daughter has a stable environment in which to raise her daughter, the judge will likely be amenable to modifying the current custody arrangements. I would definitely have her consult an attorney in her area regarding this matter. An attorney may be able to hammer out an agreement between your daughter, the father of her child, and his parents--an agreement that they will all be satisfied with.
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