Yes this is cr@p, but it happens. You can take it to the media, write a letter to the CEO of DL, or hope the gate agent/ flight attendants can help sort it out. Though sounds like they did release some blocked seats to accommodate you together.

It is true, not just on DL, that you won’t get any downgrade compensation until after you fly in the downgraded class. So deal with that after you get back.

Alternatively, you can probably demand a refund of the entire trip if you don’t want to accept the downgrade. As a mileage award ticket, they should redeposit the miles and waive any fees.

Oh, you can also write your congressperson. IIRC there was a push at some point for regulation requiring families to be seated together (or adults with children at least). And regardless, I’d file a complaint with the Dept. Of Transportation.