In divorce actions, the most common hypothecation of assets is the marital home. In this, one spouse buys out the other using a property settlement note. One spouse pays the other a sum for a negotiated length of time at current interest rates. Since the money is a division of property, it is not taxable. The recipient does pay taxes on the interest, not the principal. The note is normally collateralized by the home. Generally, the lender -- the spouse receiving the payment -- is not given title to the property.