Well, unless all of their assets were confiscated (which would require a pretty serious, possibly/maybe financial crime?) they should be able to still buy lifestyles and crap, just not access it until they're out. Otherwise, if you don't let them buy crap, you're gonna end up with PCs who have 200 BP in skills which is kind of meta...
I'd have them build 100% as normal - don't inform them of the nature of the start, have them declare what they carry on them normally out to a night at the bar or whenever they were arrested, they lose that and anything restricted/forbidden in their homes to "evidence" collection but should be able to retain anything else, no?