Split a string field into an array in jq?

You're making it a lot more complicated than it is. Just use map() and |=:

jq 'map(.tags |= split(" "))' file.json

Edit:

If you want to handle entries without tags:

jq 'map(try(.tags |= split(" ")))' file.json

Alternatively, if you want to keep unchanged all entries without tags:

jq 'map(try(.tags |= split(" ")) // .)' file.json

Result:

[
  {
    "tags": [
      "tagA",
      "tag-B",
      "tagC"
    ],
    "title": "Some Title"
  },
  {
    "tags": [
      "tagA",
      "tagC"
    ],
    "title": "Some Title 2"
  }
]