In my opinion, this person has not demonstrated enough maturithy and trustworthyness to warrant a second chance, AT ALL. I would not draw up any contract with her, except a sale contract if you decide to as to buy the horse. She cannot be trusted to care for the horse and value the great opportunity you have extended to her. Just because you have a written contract , will not mean she complies. Yes, you can make one and have it have a clause that means non payment for a certain amount of time means you get the horse. But honestly, I would not want her on my property any more.
I would tell her, she can take the horse, or sell the horse. That's it. It would be sad if she took the horse, but I think having that person in your life at all will be head and heartache.
Good luck on your new ownersdhip. I assume the Palomino is the "small" horse, (you did not explain that very clearly at first) and if he is still a stud, are you planning to geld him?