Your nephew and his parents need to get legal advice from a good Family Law attorney.
Have them contact their state's Bar Association and ask for a referral to an attorney in their area. Fees are usually very reasonable (in my area it is $30 for a half-hour consultation) and the attorney will be able to advise them on what steps to take.
In any case, your nephew and his parents should probably initiate legal paperwork to establish Court Orders regarding custody and paternity - and this can be done by agreement, so that the young parents are not at odds with the resulting Orders.
Again, I urge them to seek legal advice from an experienced Family Law attorney.
Good luck.