A power transfer unit is provided with a torque limiting coupling that limits the amount of torque that can be transferred to the driveline components when torque peaks occur while torque is transferred to the non-slipping wheels. The torque limiting coupling includes an engagement member disposed between an input from a driving member and an output to a driven member. The engagement member is located radially between and provides a frictional engagement between the input and the output. The engagement member is capable of slipping under heavy torque loads in order to protect the driveline components.