Simplify 'if' condition
Jumping in after the horse has bolted with a very minor different approach (using Any rather than Count and null).  

IEnumerable&lt;string&gt; GetSmallFileNames(Directory directory, string fileName, string filter) 
{
   var smallFileNames = new List&lt;string&gt;();

   if (directory.Exists)
   {
       smallFileNames = directory.GetFiles(filter).Select(i =&gt; i.FullName);           
   }

   return smallFileNames.Any() ? smallFileNames : DivideIntoFiles(fileName);
}


Then used such as

IEnumerable&lt;string&gt; smallFileNames = GetSmallFileNames(directory, fileName, "*.csv");