1. Assuming your current leave is that of a WP holder, you have two options:
a. Complete 5 years as a WP migrant and apply for settlement, or
b. Apply for leave to remain as spouse of British citizen (FLR(M)) and then apply for settlement as and when you complete the qualifying residential period (under current rules, 2 years from date of issue of FLR(M) leave).
2. Ask the lawyer if he is ready to take up your case on a "no win no fees" basis!!
As for your daughter, she is entitled to be
registered as British citizen under
section 1(3) of BNA 1981. She doesn't need ILR.