I think the word you're looking for is 'salvage'. And yes, there was a mechanic in oblivion and morrowind that lets armor 'break' after being hit enough times. But i think they should change that; I mean, I think its awesome to see an enemy's armor crumble around him as your warhammer consigns him to the afterlife,
but it looks stupid if his armor just suddenly 'breaks' after being hit 20 times in the same spot. An option to fix this would maybe be like only letting armor fully 'break' during a killing move or something, but then people might try to avoid those to save the armor from losing any value. Idk, I'm sure they'll get it right.