Dividing Schedule C Income

That's one approach. If you do that, you both will be subject to self- employment tax in addition to regular income tax.

If you're married you can file two Schedules C but only if you live in a community property state. Otherwise you need to file a partnership tax return. You could also set up an S-corporation, and potentially save some of the self-employment tax.

Can you suggest other approaches?

They could be taxed as a partnership or an S-corporation. They could also set up a C-corporation, but that's not likely to be helpful to them.

I am assuming that the total self-employment tax won't change. My earned income is way under $160K, so every dollar of income transferred to her will trigger 15.3% self-employment tax on her, but reduce the self-employement tax on me dollar for dollar.

That's correct. However if your business could be taxed as an S- corporation, you might be able to save some of that self-employment tax.