Traditional non-rigid registration algorithms are incapable of accurately registering intra-operative with pre-operative images whenever tissue has been resected or retracted. In this work we present methods for detecting and handling retraction and resection. The registration framework is based on the bijective Demons algorithm using an anisotropic diffusion smoother. Retraction is detected at areas of the deformation field with high internal strain and the estimated retraction boundary is integrated as a diffusion boundary in the smoother to allow discontinuities to develop across the resection boundary. Resection is detected by a level set method evolving in the space where image intensities disagree. The estimated resection is integrated into the smoother as a diffusion sink to restrict image forces originating inside the resection from being diffused to surrounding areas. In addition, the deformation field is continuous across the diffusion sink boundary which allow us to move the boundary of the diffusion sink without changing values in the deformation field (no interpolation or extrapolation is needed). We present preliminary results on both synthetic and clinical data which clearly shows the added value of explicitly modeling these processes in a registration framework.