1988 700R4 trans leaking back into transfer case

[OZRY83]

ok I have an 88 gmc , 350 v-8 , 700r4 auto and 4x4 transfer case.  I think I know what problem is but just wanna verify with some other opinions. After sitting awhile the trans fluid from torque converter leaks down and overfills pan and will leak into transfer case. I believe the front pump is worn and that allows air into torque converter and it bleeds off, but instead of it just overfilling in pan it will fill transfer case.

   I think it needs to get a rebuilt trans so will quit bleeding off. Whats your opinions??