Changing materials based on the position relative to another object

Hello everyone,
I’m new to UE4 and I already know that I’ll be frequent visitor of this forum :slight_smile:

I’m looking for the best way to change the opacity(or color) of the material, but only on the part of the model - that part which is near the another object. Here is some illustration of the problem:

My actual idea is to override vertex colors based on character position(relative to another object) and use it in material editor to create for example opacity mask. Is this a good idea? Maybe you know some better solution to achieve such effect?

I’ll be thankful for all advices!