A deed of trust is a form of financing in which the seller conveys legal title to a trustee, who holds that status until the underlying debt is paid, while the buyer of the real estate enjoys equitable title over the real estate. The deed of trust is the security for the debt.
If you are going to let your wife "buy" your share of the house with money from her 401K account, keep in mind that the money in that account is pre-tax money, and is thus 'worth less than' money in a regular savings account - if your interest is worth $50K, you should negotiate for a discount based upon the value of the money if you withdrew it and paid the taxes and penalties, such that it is equivalent to $50K cash in hand.
It sounds like she wants to refinance, and wants you to sign to be liable in the case of default.

