Using arms when arm is separated by upper arm and lower arm - on different layers

If you want to use him live later, then I don't think you will be able to use two arm segments. I think you will have to use one and make it bend at the elbow. Anything else I think will be too hard. (Well, actually, you could pre-record a series of standard arm movements and record them into "Replays". Then you trigger the reply when using the puppet live. That is, you press keys on the keyboard, not drag the hands around. That might actually be easier to do. It is also useful if you are using other software with the character (e.g. live streaming while showing a game you are playing behind it). Triggers (which cause replays to start) can be bound to MIDI devices, which work even when CH loses focus. So you can get a MIDI device to move the arms etc just by clicking buttons.

But here is another hack to try! On the elbow, attach a cog (or other circular robotic shape) as an independent layer to the elbow. You might use Hinge as the attach type (not weld). Put this in front of the arm. That way the cog hides the real elbow joint. you wont see the distortion.

Put a dragger on the elbow and the wrist. If you record a drag for the elbow, that will lock down the position. Dragging the wrist in a second recording over the top will not move the elbow. 

Now it can get confusing using a single Dragger behavior on a puppet. When you record the elbow, then go back and record the wrist, you won't be able to see the elbow dragging recording! Its still there, just not visible.  That makes it tricky to get everything aligned. To solve this, add multiple dragging behaviors to the puppet. Then use one say for the elbows, and a separate one for the wrists. This allows you to arm one dragger at a time, playing back the other dragger. That way you can see all the recordings made by draggers other than the one you are recording at the moment.

If you want to go further, if you make the upper and forearms independent, then dragging them will *never* move the parent layer. But this also depends on your artwork whether independence is better or worse. You also have to nest the forward arm the upper arm group so it can attach (you can only attach layers to parents in the mesh hierarchy).