Hello there!
I can offer some imput here, but again, its based on MY experiences with my dogs, so here goes...
I have 5 dogs! Two VERY BIG GERMAN SHEPHERDS, Diablo and Ginger, and 3 yorkies- Brutis, Destiny, and Creasy Bear, at 4lbs and under.
I have had Diablo since he was 6 wks old and have done some EXTENSIVE training with him. I am no professional, but I am proud that I have a very well balanced and behaved dog. Ginger came to us at 18 months from a GS rescue and was very unbalanced. Working with her DAILY and going by Diablo's example, she really got better and was no longer as dog excited/aggresive as when she came to us. I wouldn't change her for the world now!!
Having a LARGE dog in the home, changes the situation greatly regardless of how trained they are. Accidents can happen. You can just do your best to make sure things don't get rough or crazy.
My GS's are mostly outside but come in a lot and to sleep. The yorkies at first were in their x-pen and I introduced them little by little. They are really good with eachother. Amazingly, I give most of the credit here to the big dogs. I have trained them more, so they are much more obedient. I have no excuse for letting my yorkies get away with murder!!
As for you dog, I'm sure he is going to be just fine. It takes a special dog to be a police K9. I have worked with many in my field. They are exremely intelligent and know when they are "working" and when they are at home. There is going to be a transion time for your GS. He is going to miss work and have some stress in the begining. I think it will be good to keep him busy and give him a new job. Kind of like keep him as a security dog, lol. He can watch over you guys and the baby! Teach him new tricks, (i.e. getting the paper, dragging the laundry basket, fetching a beer, you know...)As you know, his loyalty will go without question.
Some concerns would be his bite history. Since your husband worked with him, he would know what his good and bad tendencies are. Does he bite only on command? Does he bite just to bite when not told to? And most importantly, does he LET GO on command? Or was he mainly used as a NDD? Narcotics Detection Dog? Although their history's aren't a "for sure" predictor of what their future behavior may be, it's good to just be aware.
There are many rewarding experiences to having large dogs. The sense of security is irreplaceable- even if you have guns in the house! lol! I enjoy jogging with my dogs and other outdoor activities that make them feel special. Best wishes with your new baby and feel free to PM if you have any more questions or want to hear any more GS-yorkie stories!
