I have done some reading up and everything talks about the transfercase oil seal being bad and leaking at the seal/metal cup. I think my situation is unique in that I have a loose inner boot clamp and gear oil is leaking out.
I tried to find some diagrams to explain it but I'm perplexed as to how there is gear oil inside the boot. Shouldn't it be bearing grease?
Is there an oil passage on the base of the axle spline? I'm not very familiar with this car yet and there is most likely a sime explanation but I'm having trouble finding it.
Attached is a pic of the boot. It is not torn or damaged but it was pretty easy to slide the clamped boot off. That didn't seam normal.



Also note: there is no other evidence of leaking anywhere else on or around the transfer case. It is only coming from where the boot slides over the base.

 

If the car has been up on jack stands the suspension is fully extended so the axle is at a downward angle. Maybe the oil is leak from the seal on the transfer case where the axle goes in and is just running down the axle?

 

They do not share oil in any way. If you have diaqueen it just so happens you have a leaky axle seal as well as a broken boot. I repaired my boot on my car many moons ago every though everyone told me it would not last. 125k miles still rocking Go get a boot kit for a DSM inner from advance or autozone and order an axle seal.

Also noticed you said it is only leaking from around the boot it must be just the grease in the axle in that case but I still bet on axle seal and repair kit

 

I know it sounds crazy but it bone dry from the transfer case up to this boot.

 

Are you sure it isnt just axle grease mixed with water?

 

Yes. Its definately gear oil.
Does anyone have any of service manual so I can understand how the axle works?

 

I had that issue. The grease used in the boots is a 2 part one. When it gets hot from touching the engine it seperates. and part of it burns off.

 

There is no connection between the axle cup and the transfer case other than solid metal. So, I'd say, get the axle fixed or replaced and then look for the source of the leak. Also, keep your transfer case topped up or have more trouble.

 

That doesn't look like an oem axle. The cv joints on the oem units are green. Non-oem replacements most often have a black joint like yours. When you buy a non-oem replacement from some random auto parts place, they usually give you a refurbished unit, or one of lesser than oem quality. Why do I know this? Because I replaced my leaking oem axles with a cheap auto parts store pair and after a few months of driving, they started leaking again. Only this time, instead of that thick peanut-butter like grease coming out, there was something more the consistency of motor oil leaking out...exactly like what you have there. Call up AWD Motorsports...they always have spare used axles laying around. You have to use oem quality or better