Given what you want to spend on the car and having two small children I would think you'd want to keep your maint costs down as well.

I vote Lexus. The Audi and Merc could be real pains as they age. We have an 07 X3 and an 08 Passat Wagon.... I love the Passat but not sure I would suggest an 06 model as it was the first for this generation and has had some issues. The Lexus IS is a sporty car with good reliability but you prob want to check out the back seat. Some consider it a bit on the small side.

Have you considered the 3 series? Maint would be higher than the Lexus but prob better than the Audi or Merc.