You don't get a step up in basis to fair market value due to a divorce, so the Fair Market Value should not come into play.

I am not sure this is a sale in any case. (Probably an issue for state law).

In the State I am in, all of this transaction would be a portion of a property settlement, or property division, and there are almost never any tax affects of property settlements.

If there is a Taxable Sale - Her basis would be what she originally paid for the property (if she bought it before marriage as she says) less the depreciation she took over the years (or should have taken - that old allowed or allowable rule). Adjusted possibly for what ever transaction took place that possibly gave him an ownership interest in the house. 

Did she actually get $268,000 and used that to pay off the existing mortgage, or did she get 268, plus he paid off the mortgage?

What a mess. Not sure I contributed much but more questions.