Yes, you can just cut the axe into two pieces but no need to be done in PS.
1.Convert the Axe to mesh
- Clone the Axe to get an extra copy
- Remove lower part of the mesh from Axe 1 which is suppose to be below the arm.
- Remove upper part of the mesh from Axe 2 which is suppose to be above the body and change it's draw order accordingly.
Note that you may want to leave a little overlapping area for the two meshes to prevent 'crack' when transforming / scaling them.