As Sagewing says, any half decent contract will have termination clauses, which are put there for this very reason. Things happen, projects have to be abandoned, that's life - sometimes developers circumstances change, sometimes clients turn out to be psychos. I'm sure your wife will know about termination clauses in contracts. If he owes them money for work not performed, he'll have to pay it back. It may be in this case that he's best paying all money back and let the client's start again with a new developer, it really depends on how much work was performed and whether it is usable. Or he can help them find someone to take over the project. Lots of options, but hopefully he's got termination clauses backing it all up (which normally work both ways - i.e. clients are also allowed to walk away from projects).
If not, still shouldn't be a problem, the client will want to avoid being left in the lurch, so as long as the OP helps him in the transition to the next developer and all money issues are sorted fairly, it should all end well. If it happened to me and my developer told he he could not complete a project, I'd have to accept it and look at ways in which we could find a suitable replacement to ensure the work was still completed on time, to the expected standards and original agreed price. If that can be done, great, no big deal.