your character gets drawn behind/in front of objects / other characters depending on the characters center point (normaly at feet position). This position gets checked against the object center of the objects. Is your characters object center value above the object center value of an object/other character, he should get drawn in front of it and the other way around.
Also it is important to order your objects in the drawing order of the scene. There is a "sort" button to do it automatically.