Throughout Dead To Me season 1, Judy (Linda Cardellini) and Steve (James Marsden) had a very volatile on and off relationship. One minute he was taking out a restraining order against her, then they were back together, then Judy and Steve broke up, but then they hooked up and she wanted to get back together, but by then he was dating someone else and threatening to let her go down for the hit-and-run they were involved in. Finally, Judy seemed to have enough and turned Steve in to the police for money laundering.
Judy's motive for turning Steve in seemed in part to be a way to keep him from turning her in for Ted's hit-and-run death. Steve had previously told her that since he was the only witness, he controlled the narrative. Maybe she hoped that the police could lock him up or that it would at least discredit him if he ever decided to try to implicate her in Ted's death. But part of the reason she turned him in also seemed to be because she was hurt that he was seeing someone else and that he rejected her when she thought she was pregnant. (She turned out not to be.) Furthermore, before turning him in, Judy emptied his bank account to give to Ted's wife Jen (Christina Applegate) in an attempt to assuage her own guilt.
Before turning him in, for most of the first season, Judy wanted to be with Steve. The only reason she even broke up with him is because Jen forced her to cut and run in episode 4. Jen literally did the breaking up for Judy, telling Steve that Judy wouldn't be coming back to him. As a viewer, it's easy to understand why Jen wanted Judy out of that relationship. Steve was manipulative, cruel, and borderline abusive. But as many women who are in bad relationships do, Judy would romanticize the good times with him and commend him for being kind in the beginning and at least never cheating on her like Jen's husband Ted did.
This explains why Judy continues to be so emotional over a man the rest of us remember as a complete monster throughout season 2.
Warning: This is where the spoilers for season 2 of Dead to Me begin.
Throughout the new season, she continues to defend him even after listening to the voicemails he left, threatening to kill her. She focused on the good times and pushed aside the bad. But she seems to have gotten a real wake up call in episode 7, because that's when she learned that Steve seemed to have been cheating on her.
Back in season 1, Judy briefly thought she was pregnant with Steve's baby and went to try to get back together with him for good. While at his office, Steve's new girlfriend walked in. Judy was upset that he was dating someone new, but there wasn't much she could say, because she had been seeing someone too (police officer Nick played by Brandon Scott). It's unclear exactly how much time passed in season 1, and Judy and Steve's relationship was on and off for much of it. Six episodes passed between Judy and Steve's breakup and Steve's death, but not that much actual time seems to have passed in those episodes.
So when Steve's girlfriend showed up in season 2 and she was four months pregnant, Judy was devastated. This is partially because this woman who was dating Steve is pregnant — something that Judy has wanted, but been unable to achieve. Judy is also suspicious: Her first question is how far along the woman is, in hopes of establishing a timeline in which Steve didn't cheat on her. If Steve did cheat, it would erode part of the foundation she'd built for "Steve the good guy" before things went so bad. It was one of the core tenets of his goodness that she explained to Jen in his defense in season 1.
"Before everything happened, Steve was really good to me. He was kind, he was loving, he never cheated on me," Judy said.
The idea that Steve may have cheated and that the result of his cheating was a pregnancy would understandably be devastating for Judy. And if she could have turned him in for money laundering all over again at that point, she probably would have.