The Last Woltz
Kay was part of the same hypocrisy as Michael. She had ample reason to believe that Michael was a murderous crime lord, but chose not to

Turnbull
Kay wasn't stupid, she was a champion self-deceiver

I think that the Tahoe shooting pushed her over the edge because (apparently for the first time) Michael's criminal business threatened her and her kids' safety. Note the look she gives him after the shooting when she and Connie are cradling the kids. That was it, period

Don Cardi
However, in fairness to Michael ..... It's the buisness she had chosen

dontomasso
I have said before that as much as she protested, Kay enjoyed the privileged lifestyle Michael gave her. She very well knew what his business was, and I agree with the others that she was totally in denial and deceiving herslf.