This is pure speculation, but perhaps they submitted a refund request to the refunds department, and you haven't yet officially been refunded? And, once you are, you'll be downgraded?

Alternatively, the refund may not have gone through and you're still ticketed in First.

Third alternative: The refund was processed but, for whatever reason, you weren't downgraded.

Is this a long flight? And how young are your kids? If this is a 2-3-hour flight and your family members are teenagers or older, I'd be inclined to roll the dice and see what happens. Maybe things work out (everyone gets upgraded), you get very lucky (everyone gets upgraded and they give you your money back), things sort of work out (you're all back in coach, together) or things don't really work out (you're all assigned across the Y cabin). In any event, none is terribly serious, and if you are all randomly assigned, you can probably get a few miles or a credit with a clearly written complaint. If the flight is short and no one's too young, that's not much more than a (valid) annoyance.

I would note that, on many domestic aircraft, United blocks seats 7D and E (or 7C and D on certain regional jets) until 24-48 hours prior to departure. When check-in opens, see if you can grab them. They're two of the best seats in the cabin, with extra legroom.