I'm sorry this has happened OP, it is a really tricky situation.
I'm glad the police have offered to assist. Bear in mind though, that they are not dog experts. Their dog handlers are experienced dog handlers but they aren't behaviouralists. They will more likely send people with training in handling partially dangerous dogs and who have equipment to do so without putting themselves at risk.
The equipment will likely be pretty brutal and the priority will be to reduce any bite risk rather than not to antagonise or upset your dog. This is of course understandable, but even a non aggressive dog may become reactive when handled with this type of kit.
This is incredibly hard but the dog is your responsibility and you need to decide what you want to do (unless police take matters into their own hands but that can be a long protracted process where the dog is retained for a long while).
No one can reliably say what the issue is until he's had a full vet check. A behaviouralist with experience in potentially aggressive dogs would also be really helpful- but a reputable one would insist on a vet check first.
It's obviously important to keep yourselves safe. He's clearly taken issue with your partner and so he needs to stay well out of the way, as do the children. Any bite is very worrying, and terriers tend to be quicker to react than most other breed groups- but bear in mind the fact that there is loads of blood wasn't a calculated result by your dog- he just went in for a bite for whatever reason.
I appreciate it's hard to know what to to do, but your partner leaning over the dog was likely to have really worried him. Imagine you're in a state and a person who is much much bigger than you looms overhead. For this reason it's never a good idea to loom or lean over any dog and something that should definitely be avoided around d a reactive or stressed dog. I also understand why you've segregated him but this too might have upset him.
You may be able to gather some clues by observing your dog. Is he eating and drinking, is he moving freely, is he looking at his tummy, is he licking or nibbling any part of his body, does he seem restless or agitated.....
Good luck OP. This is really hard but you need to decide what is best for your dog, you are his owner and he deserves a grown up, compassionate decision rather than months in police kennel limbo, even if that is ending his life humanely.